`UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

    For the fiscal year ended Ddecember 31, 2006
                              -----------------
                                       OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    For the transition period from ______ to ______

Commission file number 01-21617
                       --------

                                THE QUIGLEY CORPORATION
                                -----------------------
                 (Exact Name of Registrant as Specified in Its Charter)

           Nevada                                                23-2577138
           ------                                                ----------
(State or Other Jurisdiction                                 (I.R.S. Employer
of Incorporation or Organization)                            Identification No.)


KELLS BUILDING, 621 SHADY RETREAT ROAD, P.O. BOX 1349, DOYLESTOWN, PA   18901
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                              (Zip Code)


Registrant's telephone number, including area code (215) 345-0919
                                                   --------------

Securities registered pursuant to Section 12(b) of the Act:  None
                                                             ----

Securities registered pursuant to Section 12(g) of the Act:

                                                     Name of each exchange
       Title of each class                            on which registered

COMMON STOCK, $.0005 PAR VALUE PER SHARE             NASDAQ NATIONAL MARKET
----------------------------------------       ---------------------------------
     COMMON SHARE PURCHASE RIGHTS                        NOT APPLICABLE
----------------------------------------       ---------------------------------

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.  Yes [ ]  No [X]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act.  Yes [ ]  No [X]

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.  Yes [X]  No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K (ss.  229.405 of this chapter) is not contained  herein,  and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [ ]



Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

  Large accelerated filer [ ]  Accelerated filer [X]   Non-accelerated filer [ ]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act).  Yes [ ]  No [X]

The  aggregate   market  value  of  the   registrant's   common  stock  held  by
non-affiliates  was $79,250,060 as of June 30, 2006,  based on the closing price
of the common stock on The NASDAQ National Market.

Number of shares of each of the registrant's  classes of securities  outstanding
on December 31, 2006:

Common stock, $.0005 par value per share: 12,684,633.
Common share purchase rights: 0

DOCUMENTS INCORPORATED BY REFERENCE

Information  set forth in Part III of this report is  incorporated  by reference
from  the   registrant's   proxy  statement  for  the  2007  annual  meeting  of
stockholders.



                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
Part I      PAGE

      Item 1.  Business                                                    2 -11

           1A. Risk Factors                                               11- 18

           1B. Unresolved Staff Comments                                      18

           2.  Properties                                                     18

           3.  Legal Proceedings                                         18 - 26

           4.  Submission of Matters to a Vote of Security Holders            26

Part II

           5.  Market for Registrant's Common Equity, Related
               Stockholder Matters and Issuer Purchases of Equity
               Securities                                                26 - 28

           6.  Selected Financial Data                                        28

           7.  Management's Discussion and Analysis of Financial
               Condition and Results of Operation                        29 - 35

           7A. Quantitative and Qualitative Disclosures About
               Market Risk                                                    35

           8.  Financial Statements and Supplementary Data                    36

           9.  Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure                            37

           9A. Controls and Procedures                                        37

           9B. Other Information                                              38

Part III

           10. Directors and Executive Officers of the Registrant             38

           11. Executive Compensation                                         38

           12. Security Ownership of Certain Beneficial Owners and
               Management and Related Stockholder Matters                     38

           13. Certain Relationships and Related Transactions                 38

           14. Principal Accountant Fees and Services                         38

Part IV

           15. Exhibits and Financial Statement Schedules                39 - 40


                                       -1-


FORWARD-LOOKING STATEMENTS

In addition to  historical  information,  this Report  contains  forward-looking
statements.  These  forward-looking  statements are subject to certain risks and
uncertainties  that could cause actual results to differ  materially  from those
reflected in these forward-looking  statements.  Factors that might cause such a
difference include,  but are not limited to, management of growth,  competition,
pricing  pressures  on the  Company's  products,  industry  growth  and  general
economic conditions.  Readers are cautioned not to place undue reliance on these
forward-looking  statements,  which reflect management's opinions only as of the
date hereof.  The Company undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements.

CERTAIN RISK FACTORS

The Quigley  Corporation makes no representation that the United States Food and
Drug  Administration  ("FDA")  or any  other  regulatory  agency  will  grant an
Investigational  New  Drug  ("IND")  or take  any  other  action  to  allow  its
formulations  to be  studied  or  marketed.  Furthermore,  no claim is made that
potential medicine discussed herein is safe, effective,  or approved by the Food
and Drug  Administration.  Additionally,  data  that  demonstrates  activity  or
effectiveness  in animals or in vitro tests do not necessarily mean such formula
test  compound,  referenced  herein,  will be  effective  in humans.  Safety and
effectiveness  in humans will have to be  demonstrated  by means of adequate and
well controlled clinical studies before the clinical significance of the formula
test  compound  is known.  Readers  should  carefully  review  the risk  factors
described  in other  sections  of the filing as well as in other  documents  the
Company  files from time to time with the  Securities  and  Exchange  Commission
("SEC").

                                     PART I

ITEM 1.     BUSINESS

BUSINESS DEVELOPMENT

The  Company,   headquartered   in  Doylestown,   Pennsylvania,   is  a  leading
manufacturer, marketer and distributor of a diversified range of homeopathic and
health products which comprise the Cold Remedy, Health and Wellness and Contract
Manufacturing  segments.  The  Company  is also  involved  in the  research  and
development  of  potential  prescription  products  that  comprise  the  Ethical
Pharmaceutical segment.

The Company's business is the development, manufacture, sale and distribution of
over the counter  (OTC) cold remedy  products,  proprietary  health and wellness
products through its direct selling  subsidiary and the research and development
of natural-source derived pharmaceuticals.

Cold-Eeze(R) is one of the Company's key cold remedy OTC products whose benefits
are derived from its proprietary zinc formulation.  The product's  effectiveness
has  been  substantiated  in two  double-blind  clinical  studies  proving  that
Cold-Eeze(R)  reduces the duration  and severity of the common cold  symptoms by
nearly half. The Cold Remedy segment,  where  Cold-Eeze(R)  is  represented,  is
reviewed  regularly  to  realize  any  new  consumer  opportunities  in  flavor,
convenience  and  packaging  to help improve  market share for the  Cold-Eeze(R)
product.  Additionally,  the  Company  is  constantly  active in  exploring  and
developing new products  consistent  with its brand image and standard of proven
consumer benefit.

Effective October 1, 2004, the Company acquired  substantially all of the assets
of JoEl,  Inc., the previous  manufacturer of the  Cold-Eeze(R)  lozenge product
assuring a future manufacturing  capability necessary to support the business of
the  Cold  Remedy  segment.   This  manufacturing  entity,  now  called  Quigley
Manufacturing  Inc.  ("QMI"),  a wholly owned  subsidiary  of the Company,  will
continue to produce lozenge product along with performing such operational tasks
as warehousing and shipping the Company's  Cold-Eeze(R)  products.  In addition,
QMI  produces  a  variety  of hard and  organic  candy  for sale to third  party
customers  in addition  to  performing  contract  manufacturing  activities  for
non-related entities.

The Health and Wellness  segment is operated through Darius  International  Inc.
("Darius"), a wholly owned subsidiary of the Company which was formed in January
2000  to  introduce  new  products  to the  marketplace  through  a  network  of
independent distributor representatives. Darius is a direct selling organization
specializing in proprietary  nutritional and dietary supplement based health and
wellness products.  The formation of Darius has provided  diversification to the
Company in both the  method of product  distribution  and the  broader  range of
products  available  to the  marketplace,  serving as a balance to the  seasonal
revenue cycles of the Cold-Eeze(R) branded products.


                                      -2-


In January 2001, the Company formed an Ethical Pharmaceutical  segment,  Quigley
Pharma  Inc.  ("Pharma"),  that is under the  direction  of its  Executive  Vice
President and Chairman of its Medical Advisory Committee.  Pharma was formed for
the  purpose of  developing  naturally  derived  prescription  drugs.  Pharma is
currently  undergoing  research  and  development  activity in  compliance  with
regulatory  requirements.  At this time, eight U.S. and ten foreign patents have
been issued and  assigned to the Company  resulting  from  research  activity of
Pharma. In certain  instances where a critical mass of positive  scientific data
has been  established for compounds that the Company does not envision  bringing
to  market,  or is unable to fund  ongoing  research,  it may  decide to sell or
license its technology.

DESCRIPTION OF BUSINESS OPERATIONS

Since  its  inception,  the  Company  has  continued  to  conduct  research  and
development  into various types of  health-related  supplements  and homeopathic
cold  remedies.   Initially,  the  Company's  business  was  the  marketing  and
distribution   of  a  line  of  nutritious   health   supplements   (hereinafter
"Nutri-Bars").  During  1995,  the  Company  reduced the  marketing  emphasis of
Nutri-Bars  and commenced  focusing its research and  development  and marketing
resources on the Company's  patented  Cold-Eeze(R)  zinc gluconate  glycine cold
relief products.

Prior to the fourth  quarter  1996,  the Company had minimal  revenues  and as a
result  suffered  continued  losses due to ongoing  research and development and
operating expenses. However, 1997 resulted in significant revenue increases as a
result of the Company's  nationwide  marketing campaign and the increased public
awareness through media public service announcements of the Cold-Eeze(R) lozenge
product.

Since  June  1996,  the  Cold  Remedy  segment  has  concentrated  its  business
operations on the  manufacturing,  marketing and  development of its proprietary
Cold-Eeze(R)  cold-remedy lozenge products and on development of various product
extensions.  These products are based upon a proprietary zinc gluconate  glycine
formula,  which has been proven to reduce the  duration  and  severity of common
cold symptoms.  The Quigley  Corporation  acquired  worldwide  manufacturing and
distribution rights to this formulation in 1992 and commenced national marketing
in 1996. The demand for the Company's  cold-remedy  products is seasonal,  where
the third and fourth  quarters  generally  represent  the largest  sales volume.
Prior to October 1, 2004, the  manufacture  of the lozenge form of  Cold-Eeze(R)
was  outsourced.  Since that date,  the lozenge  form of  Cold-Eeze(R)  has been
manufactured by a subsidiary of the Company.

Darius is a direct selling  organization  specializing in proprietary health and
wellness  products,  which commenced  shipping product to customers in the third
quarter of 2000.

Pharma is currently  involved in the lengthy process of conducting  research and
development  on certain of its  patented  formulations  in  compliance  with FDA
regulations  required for bringing  prescriptions and botanical drugs to market.
The Company is in the initial stages of what may be a lengthy process to develop
these patent applications into potential commercial products.

In 2006,  2005 and  2004,  approximately  9%,  8% and 7%,  respectively,  of the
Company's net sales were related to international markets.

Financial information regarding the Company's operating segments is set forth in
Item 8, Notes to Financial Statements, Note 16 - Segment Information.

PRODUCTS

COLD-REMEDY PRODUCTS

In May 1992,  the Company  entered into an  exclusive  agreement  for  worldwide
representation,  manufacturing, marketing of Cold-Eeze(R) products in the United
States.  Cold-Eeze(R),  a zinc gluconate glycine formulation  (ZIGG(TM)),  is an
over-the-counter  consumer  product  used to reduce the duration and severity of
the common cold and is available in lozenge, sugar-free tablet and gum form. The
Company has substantiated the effectiveness of Cold-Eeze(R) through a variety of
studies.  A  randomized  double-blind  placebo-controlled  study,  conducted  at
Dartmouth College of Health Science, Hanover, New Hampshire,  concluded that the
lozenge  formulation  treatment,  initiated  within 48 hours of  symptom  onset,
resulted in a significant reduction in the total duration of the common cold.

On May 22, 1992,  "ZINC AND THE COMMON COLD, A CONTROLLED  CLINICAL  STUDY," was
published in England in the "Journal of International  Medical Research," Volume
20, Number 3, Pages 234-246. According to this publication,  (a) flavorings used
in  other  Zinc  lozenge  products  (citrate,   tartrate,   separate,   orotate,
picolinate,  mannitol or sorbitol)  render the Zinc inactive and  unavailable to


                                       -3-


the patient's  nasal  passages,  mouth and throat where cold symptoms have to be
treated, (b) this patented formulation delivers  approximately 93% of the active
Zinc to the  mucosal  surfaces  and (c) the  patient  has the same  sequence  of
symptoms  as in the  absence  of  treatment  but goes  through  the phases at an
accelerated rate and with reduced symptom severity.

On July 15, 1996,  results of a new randomized  double-blind  placebo-controlled
study on the common cold, which commenced at the CLEVELAND CLINIC  FOUNDATION on
October 3, 1994, were published.  The study called "ZINC GLUCONATE  LOZENGES FOR
TREATING THE COMMON COLD" was  completed and published in THE ANNALS OF INTERNAL
MEDICINE - VOL. 125 NO. 2. Using a 13.3mg  lozenge  (almost half the strength of
the  lozenge  used in the  Dartmouth  Study),  the  result  still  showed  a 42%
reduction in the duration of common cold symptoms.

In April 2002, the Company announced the statistical  results of a retrospective
clinical  adolescent  study at the Heritage School facility in Provo,  Utah that
suggests that  Cold-Eeze(R)  is also an effective means of preventing the common
cold and statistically (a) lessens the number of colds an individual suffers per
year,  reducing  the  median  from  1.5 to  zero  and  (b)  reduces  the  use of
antibiotics  for respiratory  illnesses from 39.3% to 3.0% when  Cold-Eeze(R) is
administered as a first line treatment approach to the common cold.

In April 2002,  the Company was  assigned a Patent  Application  which was filed
with the Patent Office of the United States  Commerce  Department for the use of
Cold-Eeze(R) as a prophylactic for cold prevention.  The new patent  application
follows the results of the adolescent study at the Heritage School facility.

In May  2003,  the  Company  announced  the  findings  of a  prospective  study,
conducted at the Heritage School facility in Provo, Utah, in which 178 children,
ages 12 to 18 years, were given Cold-Eeze(R)  lozenges both  symptomatically and
prophylactically  from  October 5, 2001 to May 30,  2002.  The study found a 54%
reduction in the most  frequently  observed cold  duration.  Those  subjects not
receiving  treatment most  frequently  experienced  symptom  duration of 11 days
compared with 5 days when Cold-Eeze(R)  lozenges were administered,  a reduction
of 6 days.

The business of the Company is subject to federal and state laws and regulations
adopted  for  the  health  and  safety  of  users  of  the  Company's  products.
Cold-Eeze(R)  is a homeopathic  remedy that is subject to regulations by various
federal,  state and local  agencies,  including  the United States Food and Drug
Administration ("FDA") and the Homeopathic Pharmacopoeia of the United States.

HEALTH AND WELLNESS

Darius,  through  Innerlight  Inc.,  its wholly  owned  subsidiary,  is a direct
selling company  specializing in the development and distribution of proprietary
health and wellness products,  including herbal vitamins and dietary supplements
for the human condition, primarily within the United States and since the second
quarter of 2003, internationally.

The continued  success of this segment is dependent,  among other things, on the
Company's ability:

      o     To maintain existing  independent  distributor  representatives  and
            recruit    additional     successful     independent     distributor
            representatives.   Additionally,   the   loss   of  key   high-level
            distributors  or  business  contributors  as a  result  of  business
            disagreements,  litigation  or  otherwise  could  negatively  impact
            future growth and revenues;

      o     To continue to develop and make available new and desirable products
            at an acceptable cost;

      o     To maintain safe and reliable  multiple-location sources for product
            and materials;

      o     To maintain a reliable  information  technology  system and internet
            capability.  The  Company  has  expended  significant  resources  on
            systems  enhancements  in the  past and  will  continue  to do so to
            ensure prompt  customer  response  times,  business  continuity  and
            reliable  reporting  capabilities.   Any  interruption  to  computer
            systems  for an  extended  period of time  could be  harmful  to the
            business;

      o     To  execute  conformity  with  various  federal,   state  and  local
            regulatory  agencies both within the United States and abroad.  With
            the growth of  international  business,  difficulties  with  foreign
            regulatory  requirements could have a significant negative impact on
            future growth. Any inquiries from government authorities relating to
            the  Company's  business and  compliance  with laws and  regulations
            could be harmful to the Company;


                                      -4-


      o     To compete with larger more mature  organizations  operating  within
            the same  market  and to  remain  competitive  in  terms of  product
            relevance and business opportunity;

      o     To successfully implement methods for progressing the direct selling
            philosophy internationally; and

      o     To plan strategically for general economic conditions.

Any or all of the above risks could result in significant reductions in revenues
and profitability of the Health and Wellness segment.

CONTRACT MANUFACTURING

From October 1, 2004, this manufacturing  entity, now called QMI, a wholly owned
subsidiary of the Company,  has continued to produce  lozenge product along with
performing  such  operational  tasks as  warehousing  and shipping the Company's
Cold-Eeze(R)  products. In addition to that function,  QMI produces a variety of
hard and  organic  candy  for sale to  third  party  customers  in  addition  to
performing contract manufacturing activities for non-related entities. QMI is an
FDA-approved facility.

ETHICAL PHARMACEUTICAL

Pharma's current  activity is the research and development of  naturally-derived
prescription  drugs with the goal of improving the quality of life and health of
those  in need.  Research  and  development  will  focus on the  identification,
isolation and direct use of active medicinal substances.  One aspect of Pharma's
research will focus on the potential  synergistic benefits of combining isolated
active constituents and whole plant components.  The Company will search for new
natural  sources of medicinal  substances  from plants and fungi from around the
world while also  investigating  the use of traditional and historic  medicinals
and therapeutics.

The  pre-clinical  development,   clinical  trials,  product  manufacturing  and
marketing  of Pharma's  potential  new products are subject to federal and state
regulation in the United States and other  countries.  Obtaining FDA  regulatory
approval for these pharmaceutical products can require substantial resources and
take several years.  The length of this process depends on the type,  complexity
and novelty of the product and the nature of the disease or other indications to
be  treated.  If the  Company  cannot  obtain  regulatory  approval of these new
products in a timely  manner or if the patents are not granted or if the patents
are subsequently challenged,  these possible events could have a material effect
on the business  and  financial  condition  of the Company.  The strength of the
Company's patent position may be important to its long-term  success.  There can
be no assurance  that these  patents and patent  applications  will  effectively
protect the Company's products from duplication by others.

The areas of focus are:

      o     A Patent (No. 6,555,573 B2) entitled "Method and Composition for the
            Topical  Treatment  of  Diabetic  Neuropathy."  The  patent  extends
            through March 27, 2021.

      o     A Patent (No.  6,592,896  B2) entitled  "Medicinal  Composition  and
            Method  of  Using  It"  (for   Treatment  of  Sialorrhea  and  other
            Disorders)  for  a  product  to  relieve  sialorrhea  (drooling)  in
            patients   suffering  from  Amyotrophic   Lateral  Sclerosis  (ALS),
            otherwise known as Lou Gehrig's Disease.  The patent extends through
            August 5, 2021.

      o     A Patent (No.  6,596,313 B2) entitled  "Nutritional  Supplement  and
            Method of Using It" for a product to relieve  sialorrhea  (drooling)
            in patients  suffering from  Amyotrophic  Lateral  Sclerosis  (ALS),
            otherwise known as Lou Gehrig's Disease.  The patent extends through
            April 14, 2022.

      o     A Patent (No.  6,753,325  B2) entitled  "Composition  and Method for
            Prevention,  Reduction  and  Treatment of Radiation  Dermatitis,"  a
            composition   for   preventing,   reducing  or  treating   radiation
            dermatitis. The patent extends through November 5, 2021.

      o     A Patent (No.  6,827,945 B2) entitled  "Nutritional  Supplements and
            Method of Using Same" for a method for treating at least one symptom
            of arthritis. The patent extends through April 22, 2023.

      o     A Patent (No.  7,083,813 B2) entitled  "Methods for The Treatment of
            Peripheral Neural and Vascular Ailments." The patent extends through
            August 4, 2023.


                                      -5-


      o     A Patent (No.  7,166,435 B2) entitled  "Compositions and Methods for
            Reducing the  Tranmissivity  of Illnesses." This patent will provide
            additional  protection  to an existing  composition  patent  (number
            6,592,896), which the Company received in July 2003 and will support
            on-going    investigations    and    potential     commercialization
            opportunities.  The Company will be  continuing  its studies to test
            the effects of the referenced  compound  against avian flu and human
            influenza. The patent extends through November 5, 2021.

      o     A Patent (No.  7,175,987 B2) entitled  "Compositions and Methods for
            The  Treatment of Herpes." The patent  extends  through  November 5,
            2021.

      o     A Mexican Patent (No.  236311)  entitled "Method and Composition for
            the Treatment of Diabetic  Neuropathy."  The patent extends  through
            December 18, 2020.

      o     A  New  Zealand  Patent  (No.  533439)  entitled  "Methods  for  The
            Treatment of Peripheral  Neural and Vascular  Ailments."  The patent
            extends through November 6, 2022.

      o     A New Zealand Patent (No.  526041)  entitled "Method and Composition
            for the  Treatment  of  Diabetic  Neuropathy."  The  patent  extends
            through December 18, 2021.

      o     An  Australian   Patent  (No.   2002231095)   entitled  "Method  and
            Composition  for the Treatment of Diabetic  Neuropathy."  The patent
            extends through December 18, 2021.

      o     A  South  African  Patent  (No.  2003/4247)  entitled  "Methods  and
            Composition  for the Treatment of Diabetic  Neuropathy."  The patent
            extends through December 18, 2021.

      o     A  South  African  Patent  (No.  2003/9802)  entitled   "Nutritional
            Supplements  and Methods of Using Same" for a method for treating at
            least one symptom of arthritis. The patent extends through August 5,
            2022.

      o     A South African  Patent (No.  2004/4614)  entitled  "Methods for The
            Treatment of Peripheral  Neural and Vascular  Ailments."  The patent
            extends through November 5, 2022.

      o     A South  African  Patent (No.  2005/0517)  entitled  "Anti-Microbial
            Compositions & Methods for Using Same," the patent  extends  through
            July 23, 2023.

      o     A South African Patent (No.  2004/3365)  "Topical  Compositions  and
            Methods for Treatment of Adverse Effects of Ionizing Radiation," the
            patent extends through November 5, 2022.

      o     An Israeli Patent (No. 159357) entitled "Nutritional Supplements and
            Methods of Using Same," the patent extends through August 6, 2022.

QR-333 - In April 2002, the Company  initiated a Phase II Proof of Concept Study
in France for treatment of diabetic neuropathy,  which was concluded in 2003. In
April 2003, the Company  announced that an independently  monitored  analysis of
the  Phase II  Proof  of  Concept  Study  concluded  that  subjects  using  this
formulation had 67% of their symptoms  improve,  suggesting  efficacy.  In March
2004,  the Company  announced that it had completed its first meeting at the FDA
prior to submitting the Company's IND  application for the relief of symptoms of
diabetic symmetrical peripheral  neuropathy.  The FDA's pre-IND meeting programs
are  designed  to  provide  sponsors  with  advance  guidance  and input on drug
development   programs.   In  September  2005,  the  Company  announced  that  a
preliminary  report  of its  topical  compound  for the  treatment  of  diabetic
neuropathy   was   recently   featured  in  the  JOURNAL  OF  DIABETES  AND  ITS
COMPLICATION.  Authored  by Dr. C.  LeFante  and Dr.  P.  Valensi,  the  article
appeared  in the June 1, 2005  issue,  and  included  findings  that  showed the
compound reduced the severity of numbness,  and irritation from baseline values.
In October 2005, the Company  announced the results of  pre-clinical  toxicology
studies that showed no irritation,  photo toxicity,  contact hypersensitivity or
photo allergy when applied  topically to hairless  guinea pigs and another study
that showed no difference in the dermal response of the compound or placebo when
applied  to  Gottingen  Minipigs.  (Both  animal  models are  suggested  for the
evaluation of topical drugs,  by the FDA). In March 2006, the Company  announced
the filing of an IND application  with the FDA for its topical  compound for the
treatment of Diabetic Peripheral Neuropathy.  This filing allowed the Company to
begin human  clinical  trials  following a 30-day review  period.  If no further
comments  were  forthcoming  from the FDA,  studies  with human  subjects  could
commence  pending the  availability of study drug. This  application  included a
compilation   of  all  of  the  supporting   development   data  and  regulatory
documentation  required to file an IND application  with the FDA. In April 2006,
upon FDA  approval for its IND,  the Company  announced  it's intent to commence
human studies on its formulation.


                                      -6-


The Company also  announced that in  anticipation  of receiving this IND, it had
previously held its  investigators  meeting to organize its  multi-center  phase
2(b) trials. This would allow the Company to begin these trials as soon as study
drug is available.

In May 2006, the Company announced that it had begun screening patients to start
testing  their  investigational  new drug  QR-333 and  patients  suffering  from
diabetic peripheral  neuropathy would be given doses in an escalating fashion to
provide pharmacokinetics data.

In September 2006, the Company  announced that the results from its human study,
titled   "Single   Center,   Dose   Escalating,    Safety,   Tolerability,   And
Pharmacokinetics   Study  Of  QR-333  In  Subjects  With   Diabetic   Peripheral
Neuropathy",  demonstrated  that QR-333 can be  administered  safely to patients
suffering from diabetic peripheral neuropathy and it would proceed to conducting
Phase IIb clinical  trials.  The  essential  CMC  (Chemistry  Manufacturing  and
Controls) stage would provide the Company with the necessary  information needed
to produce larger  quantities of drug for the Phase IIb trial involving close to
200 patients.

The  pharmacokinetics  trial was the first study in the U.S. conducted under the
FDA  issued  IND.  The  positive  data  showed  that  QR-333 is safe,  it is not
systemically  absorbed and it is well  tolerated  after  multiple  doses.  These
findings are consistent  with prior animal  toxicity data and the human proof of
concept study performed in France.

In November 2006, the Company  announced that patient  enrollment in a Phase IIb
multi center clinical study of QR-333 for the treatment of symptomatic  Diabetic
Peripheral Neuropathy (DPN) had commenced. The Phase IIb trial will evaluate the
safety  and  efficacy  of  QR-333   applied   three  times  daily   compared  to
placebo-treated  patients over 12 weeks.  Efficacy will be determined by Symptom
Assessment  Scores,  a Visual  Analogy  Scale  (VAS),  Quality of Life and Sleep
Questionnaires.   Safety  will  be  determined  by  medical  history,   physical
examination,  vital signs,  12-lead ECG,  laboratory  tests and nerve conduction
studies. The study will involve 150-200 randomized male and female patients with
Type 1 & 2 diabetes,  as defined by the ADA (American Diabetes  Association) and
distal symmetric diabetic polyneuropathy.

The Study  Chairman is Dr. Philip  Raskin,  Professor of Medicine  University of
Texas  Southwestern  Medical  Center at Dallas  Texas.  The study  protocol  was
approved by the FDA as a part of Quigley  Pharma's IND  submission  and has been
approved by the required  Investigational  Review Boards.  The completion of the
study is dependent upon  enrollment  rates that may affect the overall length of
the study and the communication of its results.

QR-336 - In April 2004,  the  Company  announced  the results of a  preliminary,
pre-clinical  animal study which measured the effect of its  proprietary  patent
applied  for  formulation  against  ionizing  (nuclear)  radiation.  This  study
determined that parenteral (injection)  administration of the study compound was
protective  against the effects of a lethal,  whole body ionizing radiation dose
in a mouse model. This compound is being  investigated to potentially reduce the
effects of radiation exposure on humans.

In April  2006,  the  Company  announced  that it signed an  agreement  with Dr.
William H. McBride,  the Vice Chair of Research,  Department of Oncology at UCLA
to help develop an appropriate  animal model radio  protective  research program
for QR-336 to comply with New Food and Drug Administration animal efficacy rules
for radio-protective pharmacological compounds.

In October 2006,  the Company  announced that it had received  significant  data
identifying  50  microliters  as the least  toxic and most  effective  radiation
protection dose in mice when administered ip (intraperitoneal), po (by mouth) or
sc  (under  the  skin)  prior to  radiation  exposure.  These  experiments  were
essential for providing  the Company with data to optimize the  formulation  for
efficacy  and route of  administration,  which is required  for filing under the
FDA's "Animal Efficacy Rule".

QR-337 - In September  2003,  the Company  announced  its  intention to file for
permission  to study its patent  pending  potential  treatment for psoriasis and
other skin  disorders.  Continued  testing will  therefore  have to be conducted
under an IND application following positive preliminary results.

QR-435 - In May 2004, the Company announced that an intranasal spray application
of the anti-viral test compound demonstrated efficacy by significantly  reducing
the severity of illness in ferrets that had been  infected  with the Influenza A
virus. In pre-clinical studies, the antiviral formulation demonstrates antiviral
activity  against  Ocular and Genital  Herpes,  indicating  a new  research  and
development  path for the  versatile  compound.  The Company is pleased with the
progress  and  indicated  that  continued  research  is  required to confirm the
compound's safety and efficacy profiles.


                                      -7-


In May 2006,  the Company  announced  that it would begin a series of studies to
evaluate the ocular  antiviral  efficacy  and toxicity of its  naturally-derived
topical  compound QR-435.  Studies will be completed at The Campbell  Ophthalmic
Microbiology  Laboratory  at the  University of Pittsburgh in the same lab where
previous successful in vitro studies of QR-435 were performed.

In December 2006, the Company  announced that a series of studies were conducted
on the advice of Campbell  Laboratories,  University  of  Pittsburgh,  to assess
QR-435  (Quigley  Pharma's  broad  spectrum  anti-viral)  potential for treating
Herpes Keratitis. While the in-vitro studies were very successful at killing the
herpes virus on direct  contact,  the  HSV-1/NZW  rabbit  keratitis  model study
showed that the compound,  in its aqueous  form,  did not remain in the eye long
enough to penetrate the corneal  epithelial  cells where the virus resides in an
infection.  The HSV-1/NZW  rabbit  keratitis model is a recognized  standard for
evaluating potential therapeutic agents in this class and is only utilized based
on prior positive experimentation, as was the case.

Quigley Pharma will continue to pursue  research and  development  objectives of
this compound in the treatment of  respiratory  viruses on the strength of prior
successful  in-vitro and ferret model in-vivo studies.  The company's  naturally
derived  formula has shown  significant  antiviral  properties  against  various
strains of H3N2 and H5N1 Influenza viruses in these studies.

QR-437 - In January 2004,  the Company  reported  that its  compound,  which was
demonstrating  antiviral  activity,  had shown virucidal and virustatic activity
against the strain 3B of the Human  Immunodeficiency  Virus Type 1 (HIV-1) in an
in-vitro study.  Additionally,  the Company decided that the derivative compound
of the  anti-viral  formulation  previously  found to be effective  for treating
Sialorrhea  would  probably  postpone  further  development  on  the  Sialorrhea
indication  and  concentrate  on further  qualification  and  development of the
anti-viral capabilities of the compound in humans.

QR-439 - In December  2003,  the Company  announced  positive  test results of a
preliminary  independent in vitro study  indicating  that a test compound of the
Company previously tested on the Influenza virus showed  "significant  virucidal
activity  against a strain  of the  Severe  Acute  Respiratory  Syndrome  (SARS)
virus."

In January 2004, the Company announced that it would conduct two further studies
evaluating the compound which had shown activity against Influenza and SARS. The
first  study was  intended to repeat the  previously  announced  results,  which
demonstrated the compound to be 100 percent effective in preventing non-infected
ferrets in close proximity to an infected ferret from becoming infected with the
Influenza  A  virus.  The  second  study  was a dose  ranging  study on the test
compound.   Upon  dosage  determination  and  confirmation  results  from  these
forthcoming  animal model studies,  a human proof of concept study using a virus
challenge  with  Influenza A virus in a  quarantine  unit would be a viable next
step.

QR-440 (a) - The Company received an additional  Investigational New Animal Drug
(INAD)  number from the Center for  Veterinary  Medicine of the FDA. In previous
studies, QR-440 has been shown to reduce inflammation and also suggests possible
disease-modifying potential.

QR-441(a) - In November  2005,  the Company was assigned  nine INADs for a broad
anti-viral agent by the Center for Veterinary  Medicine of the FDA. Eight of the
INADs are for  investigating  the  compound use against  avian flu  H5N1virus in
chickens,  turkeys,  ducks,  pigs,  horses,  dogs,  cats and non-food  birds. In
January  2006,  a ninth INAD was  assigned  for  investigating  its compound for
treating  arthritis in dogs.  In March 2006,  the Company  announced  that it is
planning a series of  controlled  experiments  designed  to test its all natural
broad spectrum anti-viral compound in poultry stocks. The Company also announced
that Dr. Timothy S. Cummings,  MS, DVM, ACPV Clinical  Poultry  Professor at the
College of Veterinary  Medicine at  Mississippi  State  University and Thomas G.
Voss, Ph.D.  Assistant  Professor Tulane  University  School of Medicine will be
assisting the Company in the development of the INAD bird challenge studies.

In July 2006, the Company  announced that it has obtained  positive results that
support  Quigley  Pharma's  continued  progress in developing  the natural broad
spectrum  anti-viral  QR441(a) for use in preventing  the spread of avian flu in
poultry stocks.  The results of the healthy chicken medical feed study confirmed
that  food  or  water  dose  forms   provide  an   opportunity   for   potential
commercialization if the compound demonstrates efficacy within these dose forms.
The  results  clearly  showed  that the  chickens  tolerated  and  consumed  all
concentrations  of QR441 (a) in the  medicated  feed.  They also  tolerated  and
consumed the low concentration of drug in the medicated water.


In January 2007, the Company announced  positive results from a study evaluating
its  anti-viral  compound  QR-441(a) in  embryonating  egg and VERO E6 cell test
models.  The preliminary study demonstrated  QR-441(a) as a potential  antiviral
agent in  reducing  Infectious  Bronchitis  and New  Castle  Disease,  two viral
poultry diseases that have a significant economic impact to the poultry industry
on an annual basis.  Previous in vitro studies have  demonstrated that QR-441(a)
to be a potent antiviral agent against H5N1 (Avian Flu).


In February 2007, the Company announced that it had signed an agreement with the
State of Israel  Ministry  of  Agriculture  & Rural  Development  (MOAG) and the


                                      -8-


Kimron  Veterinary  Institute to conduct a clinical trial testing the anti-viral
capacity of the Quigley  compound  QR-441(a)  administered as a medical feed and
water to chickens exposed to HPAI (Highly Pathogenic Avian Influenza) H5N1.


If  successful  this study could  potentially  provide  data on the  efficacy of
QR-441(a) in preventing  the infection of food grade poultry  through the use of
formulated  feed  and  water.  Positive  data  could  be  used to  continue  the
development  of the  compound  in the U.S with  guidance  from the FDA under the
INAD's  issued to  Quigley  in 2005 and might  also be  useful  for  development
outside the United States, where the impact of disease has already been felt.


QR-443 - In August 2006,  the Company  announced  that it had obtained  positive
results for its QR-443  compound for the treatment of Cachexia,  a  debilitating
and life threatening  muscle wasting  condition.  The results of an animal study
found a 75% efficacy rate in the treatment of mice with this condition.

In January  2007,  the Company  announced  that it had  completed a  preliminary
follow up  Cachexia  study,  evaluating  weight loss in mice.  The tumor  burden
Cachexia  model study  concluded  that QR-443 was as  effective  in delaying the
progression  of  Cachexia  when  given  orally  as it had been  shown to be when
administered intra-peritoneally in a previous study.

The new data compliments the previous study results  demonstrating a correlation
between  effectiveness  and  the  frequency  of  administration  of  the  QR-443
compound.  Cachexia is an extremely  debilitating and life threatening,  wasting
syndrome  associated with chronic diseases such as cancer,  AIDs,  chronic renal
failure,  COPD and rheumatoid  arthritis,  where  inflammation has a significant
impact and patients experience loss of weight, muscle atrophy, fatigue, weakness
and decreased appetite.


PATENTS, TRADEMARKS, ROYALTY AND COMMISSION AGREEMENTS

The Company  currently owns no patents for cold-remedy  products.  However,  the
Company has been assigned patent  applications  which are hereinafter  discussed
and has been  granted  an  exclusive  agreement  for  worldwide  representation,
manufacturing,  marketing and  distribution  rights to a zinc gluconate  glycine
lozenge formulation, which are patented as follows:

United States:  No. 4 684 528 (August 4, 1987, expired August 2004)
                No. 4 758 439 (July 19, 1988, expired August 2004)

Canada:         No. 1 243 952 (November 1, 1988, expired June 2005)

Great Britain:  No. 2 179 536 (December 21, 1988, expired June 2005)

Germany:        No. 3,587,766 (March 2, 1994, expired June 2005)

Sweden:         No. 0 183 840 (March 2, 1994, expired June 2005)

France & Italy: No. EP 0 183 840 B1 (March 2, 1994, expired June 2005)

Japan:          Pending

The  following  patents have been assigned to the Company in relation to PHARMA,
together with issue date:

United States:  No. 6 555 573 B2 (April 29, 2003)         No. 6 592 896 B2 (July 15, 2003)
                No. 6 596 313 B2 (July 22, 2003)          No. 6 753 325 B2 (June 22, 2004)
                No. 6 827 945 B2 (December 7, 2004)       No. 7,083,813 B2 (August 1, 2006)
                No. 7,166,435 B2 (January 23, 2007)       No. 7,175,987 B2 (February 13, 2007)

Mexico          No. 236311 (April 28, 2006)               South Africa   No. 2003/4247 (July 28, 2004)
                                                          South Africa   No. 2003/9802 (July 28, 2004)
New Zealand     No. 533439 (October 12, 2006)             South Africa   No. 2004/4614 (October 28, 2005)
New Zealand     No. 526041 (May 12, 2005)                 South Africa   No. 2005/0517 (December 28, 2005)
                                                          South Africa   No. 2004/3365 (May 31, 2006)

Australia   No. 2002231095 (November 24, 2005)            Israel         No. 159357 (November 21, 2006)

The  Cold-Eeze(R)  products are marketed by the Company in  accordance  with the
terms of a licensing  agreement  (between  the Company and the  developer).  The
contract is assignable by the Company with the  developer's  consent.  In return
for  exclusive  distribution  rights,  the Company  must pay the  developer a 3%
royalty  and  a 2%  consulting  fee  based  on  sales  collected,  less  certain


                                      -9-


deductions,  throughout  the term of this  agreement,  which is due to expire in
2007.  However,  the Company and the developer are in litigation  and as such no
potential offset for these fees from such litigation has been recorded.

During 1997,  the Company  obtained a trademark for the major  components of its
lozenge,  ZIGG(TM) (denoting zinc gluconate glycine),  to set Cold-Eeze(R) apart
from the imitations then proliferating the marketplace.

An  agreement  between the Company and its  founders was entered into on June 1,
1995.  The  founders,   both  officers  and  stockholders  of  the  Company,  in
consideration of the acquisition of the Cold-Eeze(R) cold therapy product,  have
received a total  commission  of five percent  (5%),  on sales  collected,  less
certain deductions. This agreement expired on May 31, 2005.

PRODUCT DISTRIBUTION AND CUSTOMERS

The Company has several Broker, Distributor and Representative Agreements,  both
nationally and internationally,  which provide for commission compensation based
on sales performance.

The Cold-Eeze(R)  products are distributed through numerous food, chain drug and
mass  merchandisers  throughout  the United  States,  including:  Walgreen  Co.,
Wal-Mart,  Ahold,  Albertsons,  CVS,  RiteAid,  Publix,  Sam's Club,  Winn-Dixie
Stores, Inc., Target, The Kroger Company, Safeway Inc., Costco Wholesale,  Kmart
Corporation,   and  wholesale  distributors  including,   AmerisourceBergen  and
Cardinal Distribution.

The  Company is not  dependent  on any  single  customer  as the broad  range of
customers includes many large wholesalers, mass merchandisers,  and multi-outlet
pharmacy  chains,  five of which account for a  significant  percentage of sales
volume. The top five customers of the Company represent 31%, 29%, and 27% of its
continuing  consolidated  gross  revenues for the years ended December 31, 2006,
2005 and 2004, respectively.

Darius is a direct selling  organization  specializing in proprietary health and
wellness  products  and the  introduction  of new  products  to the  marketplace
through a network of  independent  distributor  representatives.  This method of
distribution  is  in  contrast  to  traditional   distribution   channels  using
independent and chain drug and discount stores as utilized by the Company in the
promotion of the cold-remedy products.

Pharma  currently has no sales since it is undergoing  research and  development
activity in compliance with regulatory requirements and is at the initial stages
of what may be a lengthy process to develop commercial products.

RESEARCH AND DEVELOPMENT

The Company's  research and  development  costs for the years ended December 31,
2006,  2005 and 2004 were  $3,820,071,  $3,784,221 and $3,232,569  respectively.
Future research and development expenditures are anticipated in order to develop
extensions  of the  Cold-Eeze(R)  product,  including  potential  unrelated  new
products in the consumer health care industry,  that are primarily  supported by
clinical studies,  for efficacious  long-term  products that can be coupled with
possible line extension  derivatives for a family of products.  Clinical studies
and testing are anticipated in connection  with Pharma,  such as the formulation
of products for diabetic use, radiation  dermatitis,  influenza A, arthritis and
other disorders.  Pharma is currently  involved in research  activity  following
patent  applications  that have  been  assigned  to the  Company.  Research  and
development  costs,  relating to  potential  products,  are expected to increase
significantly  over time as milestones in the development and regulatory process
may be achieved.

REGULATORY MATTERS

The business of the Company is subject to federal and state laws and regulations
adopted  for the  health  and  safety of users of the  Company's  products.  The
Company's  Cold-Eeze(R)  product is a  homeopathic  remedy,  which is subject to
regulation by various federal,  state and local agencies,  including the FDA and
the Homeopathic Pharmacopoeia of the United States. These regulatory authorities
have broad  powers,  and the Company is subject to  regulatory  and  legislative
changes that can affect the  economics  of the industry by requiring  changes in
operating  practices  or by  influencing  the  demand  for,  and the  costs  of,
providing  its products.  Management  believes that the Company is in compliance
with all such laws,  regulations and standards currently in effect including the
Food,  Drug  and  Cosmetics  Act  of  1938  and  the  Homeopathic  Pharmacopoeia
Regulatory  Service.  Although it is possible that future  results of operations
could be  materially  affected  by the future  costs of  compliance,  management
believes  that the future costs will not have a material  adverse  effect on the
Company's financial position or competitive position.


                                      -10-


The  pre-clinical  development,   clinical  trials,  product  manufacturing  and
marketing  of Pharma's  potential  new products are subject to federal and state
regulation in the United States and other  countries.  Obtaining FDA  regulatory
approval for these pharmaceutical products can require substantial resources and
take several years.  The length of this process depends on the type,  complexity
and novelty of the product and the nature of the disease or other indications to
be  treated.  If the  Company  cannot  obtain  regulatory  approval of these new
products in a timely  manner or if the patents are not granted or if the patents
are  subsequently  challenged,  these possible  events could all have a material
effect on the business and financial  condition of the Company.  The strength of
the Company's patent position may be important to its long-term  success.  There
can be no assurance that these patents and patent  applications will effectively
protect the Company's products from duplication by others.

COMPETITION

The Company competes with other suppliers of cold-remedy and health and wellness
products.   These  suppliers  range  widely  in  size.  Some  of  the  Company's
competitors  have  significantly  greater  financial,   technical  or  marketing
resources than the Company.  Management believes that its Cold-Eeze(R)  product,
which has been  clinically  proven in two  double-blind  studies  to reduce  the
severity and duration of common cold  symptoms,  offers a significant  advantage
over  many  of its  competitors  in  the  over-the-counter  cold-remedy  market.
Management further believes that Darius' direct marketing  distribution  methods
offer a significant advantage over many of its competitors. The Company believes
that its  ability to compete  depends on a number of factors,  including  price,
product quality, availability,  speed to market, reliability, credit terms, name
recognition,  delivery time and post-sale service and support. Effective October
1, 2004, a subsidiary of the Company  commenced  manufacturing  the Cold-Eeze(R)
lozenge product.  This subsidiary assures future production  capabilities of the
lozenge product which constitutes primarily all of the cold remedy revenue.

EMPLOYEES

At December 31, 2006 the Company employed 132 full-time persons, the majority of
which were  employed at the  Company's  manufacturing  facility in a  production
function.   The  remainder   were   involved  in  an  executive,   marketing  or
administrative  capacity.  None of the  Company's  employees  are  covered  by a
collective bargaining agreement or are members of a union.

SUPPLIERS

Prior to October 1, 2004, the  manufacturing of the lozenge form of Cold-Eeze(R)
was outsourced,  but is now under the control of the Company. The other forms of
Cold-Eeze(R)  and  remaining  products  of both the cold  remedy  and health and
wellness segments continue to be manufactured by contract manufacturers.  Should
these third party  relationships  terminate or discontinue  for any reason,  the
Company has  formulated a  contingency  plan  necessary in order to prevent such
discontinuance  from  materially  affecting the Company's  operations.  Any such
termination  may,  however,  result in a temporary delay in production until the
replacement facility is able to meet the Company's production requirements.

Raw materials used in the production of the  cold-remedy  products are available
from numerous sources.  Currently,  they are being procured from a single vendor
in order to secure purchasing economies and qualitative security. In a situation
where this one vendor is not able to supply the ingredients,  other sources have
been  identified.  Any  situation  where the  vendor  is not able to supply  the
contract  manufacturer  with  ingredients  may  result in a  temporary  delay in
production  until  replacement  supplies  are  obtained  to meet  the  Company's
production requirements.

ITEM 1A.        RISK FACTORS

THE COMPANY HAS A HISTORY OF LOSSES AND LIMITED  WORKING  CAPITAL AND EXPECTS TO
INCREASE SPENDING.

The Company has experienced net losses for three of the past seven fiscal years.
Although the Company earned net income of approximately $3,217,000, $453,000 and
$675,000,  respectively,  in the fiscal years ended December 31, 2005,  December
31,  2004 and 2003,  it  incurred  net  losses of  $1,748,000,  $6,454,000,  and
$5,196,000,  respectively, in the fiscal years ended December 31, 2006, December
31, 2002,  December 31, 2000.  In the fiscal year ended  December 31, 2001,  the
Company  earned net income of  $216,000,  but that amount  included  net settled
litigation  payments  received of  approximately  $700,000  related to licensing
fees. As of December 31, 2006, The Company had working capital of  approximately
$20,541,000.  Since the Company  continues  to increase its spending on research
and development in connection with Pharma's product development, it is uncertain
whether the Company will  generate  sufficient  revenues to meet  expenses or to
operate profitably in the future.


                                      -11-


THE  COMPANY   HOLDS   PATENTS  WHICH  IT  MAY  NOT  BE  ABLE  TO  DEVELOP  INTO
PHARMACEUTICAL MEDICATIONS.

Future  success  depends in part on  Pharma's  ability to  research  and develop
prescription medications based on patents, which currently are:

      o     A Patent (No. 6,555,573 B2) entitled "Method and Composition for the
            Topical  Treatment  of  Diabetic  Neuropathy."  The  patent  extends
            through March 27, 2021.

      o     A Patent (No.  6,592,896  B2) entitled  "Medicinal  Composition  and
            Method  of  Using  It"  (for   Treatment  of  Sialorrhea  and  other
            Disorders)  for  a  product  to  relieve  sialorrhea  (drooling)  in
            patients   suffering  from  Amyotrophic   Lateral  Sclerosis  (ALS),
            otherwise known as Lou Gehrig's Disease.  The patent extends through
            August 5, 2021.

      o     A Patent (No.  6,596,313 B2) entitled  "Nutritional  Supplement  and
            Method of Using It" for a product to relieve  sialorrhea  (drooling)
            in patients  suffering from  Amyotrophic  Lateral  Sclerosis  (ALS),
            otherwise known as Lou Gehrig's Disease.  The patent extends through
            April 14, 2022.

      o     A Patent (No.  6,753,325  B2) entitled  "Composition  and Method for
            Prevention,  Reduction  and  Treatment of Radiation  Dermatitis,"  a
            composition   for   preventing,   reducing  or  treating   radiation
            dermatitis. The patent extends through November 5, 2021.

      o     A Patent (No.  6,827,945 B2) entitled  "Nutritional  Supplements and
            Method of Using Same" for a method for treating at least one symptom
            of arthritis. The patent extends through April 22, 2023.

      o     A Patent (No.  7,083,813 B2) entitled  "Methods for The Treatment of
            Peripheral Neural and Vascular Ailments." The patent extends through
            August 4, 2023.

      o     A Patent (No.  7,166,435 B2) entitled  "Compositions and Methods for
            Reducing the  Tranmissivity  of Illnesses." This patent will provide
            additional  protection  to an existing  composition  patent  (number
            6,592,896), which the Company received in July 2003 and will support
            on-going    investigations    and    potential     commercialization
            opportunities.  The Company will be  continuing  its studies to test
            the effects of the referenced  compound  against avian flu and human
            influenza. The patent extends through November 5, 2021.

      o     A Patent (No.  7,175,987 B2) entitled  "Compositions and Methods for
            The  Treatment of Herpes." The patent  extends  through  November 5,
            2021.

      o     A Mexican Patent (No.  236311)  entitled "Method and Composition for
            the Treatment of Diabetic  Neuropathy."  The patent extends  through
            December 18, 2020.

      o     A  New  Zealand  Patent  (No.  533439)  entitled  "Methods  for  The
            Treatment of Peripheral  Neural and Vascular  Ailments."  The patent
            extends through November 6, 2022.

      o     A New Zealand Patent (No.  526041)  entitled "Method and Composition
            for the  Treatment  of  Diabetic  Neuropathy."  The  patent  extends
            through December 18, 2021.

      o     An  Australian   Patent  (No.   2002231095)   entitled  "Method  and
            Composition  for the Treatment of Diabetic  Neuropathy."  The patent
            extends through December 18, 2021.

      o     A  South  African  Patent  (No.  2003/4247)  entitled  "Methods  and
            Composition  for the Treatment of Diabetic  Neuropathy."  The patent
            extends through December 18, 2021.

      o     A  South  African  Patent  (No.  2003/9802)  entitled   "Nutritional
            Supplements  and Methods of Using Same" for a method for treating at
            least one symptom of arthritis. The patent extends through August 5,
            2022.

      o     A South African  Patent (No.  2004/4614)  entitled  "Methods for The
            Treatment of Peripheral  Neural and Vascular  Ailments."  The patent
            extends through November 5, 2022.

      o     A South  African  Patent (No.  2005/0517)  entitled  "Anti-Microbial
            Compositions & Methods for Using Same," the patent  extends  through
            July 23, 2023.


                                      -12-


      o    A South African Patent (No.  2004/3365)  "Topical  Compositions  and
            Methods for Treatment of Adverse Effects of Ionizing Radiation," the
            patent extends through November 5, 2022.

      o     An Israeli Patent (No. 159357) entitled "Nutritional Supplements and
            Methods of Using Same," the patent extends through August 6, 2022.

These potential new products are in the development  stage and no assurances can
be given that  commercially  viable products will be developed from these patent
applications.  Prior  to any new  product  being  ready  for  sale,  substantial
resources  will have to be  committed  for  research,  development,  preclinical
testing,  clinical trials,  manufacturing  scale-up and regulatory approval. The
Company faces  significant  technological  risks  inherent in  developing  these
products.  The Company  may abandon  some or all of the  proposed  new  products
before they become commercially viable. Even if the Company develops and obtains
approval of a new product, if the Company cannot  successfully  commercialize it
in a timely  manner,  its business and  financial  condition  may be  materially
adversely affected.

THE COMPANY WILL NEED TO OBTAIN ADDITIONAL  CAPITAL TO SUPPORT LONG-TERM PRODUCT
DEVELOPMENT AND COMMERCIALIZATION PROGRAMS.

The Company's ability to achieve and sustain operating  profitability depends in
large part on the ability to commence,  execute and complete  clinical  programs
for, and obtain additional  regulatory approvals for,  prescription  medications
developed by Pharma,  particularly in the U.S. and Europe. There is no assurance
that the Company will ever obtain such approvals or achieve  significant  levels
of sales.  The current  sales  levels of  Cold-Eeze(R)  products  and health and
wellness products may not generate all the funds the Company anticipates will be
needed to support current plans for product development. The Company may need to
obtain  additional  financing to support its long-term  product  development and
commercialization  programs.  Additional  funds may be sought through public and
private stock offerings,  arrangements with corporate partners, borrowings under
lines of credit or other sources.

The amount of capital  that may be needed to  complete  product  development  of
Pharma's products will depend on many factors, including;

      o     the  cost   involved  in  applying   for  and   obtaining   FDA  and
            international regulatory approvals;

      o     whether the Company elects to establish partnering  arrangements for
            development, sales, manufacturing and marketing of such products;

      o     the level of future  sales of  Cold-Eeze(R)  and health and wellness
            products,  and expense levels for international  sales and marketing
            efforts;

      o     whether  the   Company  can   establish   and   maintain   strategic
            arrangements for development,  sales, manufacturing and marketing of
            its products; and

      o     whether  any or all of the  outstanding  options  and  warrants  are
            exercised and the timing and amount of these exercises.

Many  of the  foregoing  factors  are  not  within  the  Company's  control.  If
additional  funds are  required and such funds are not  available on  reasonable
terms, the Company may have to reduce its capital  expenditures,  scale back its
development  of new products,  reduce its workforce  and  out-license  to others
products or technologies  that the Company otherwise would seek to commercialize
itself.  Any additional  equity financing will be dilutive to stockholders,  and
any debt financing, if available, may include restrictive covenants.

THE  COMPANY'S  PRODUCTS  AND  POTENTIAL  NEW  PRODUCTS ARE SUBJECT TO EXTENSIVE
GOVERNMENTAL REGULATION.

The  Company's  business  is  regulated  by various  agencies  of the states and
localities  where its products  are sold.  Governmental  regulations  in foreign
countries  where the Company  plans to  commence or expand  sales may prevent or
delay entry into a market or prevent or delay the  introduction,  or require the
reformulation,  of certain of its products.  In addition,  no prediction  can be
made as to whether new domestic or foreign legislation regulating our activities
will be enacted. Any new legislation could have a material adverse effect on its
business, financial condition and operations. Non-compliance with any applicable
requirements  may subject the Company or the  manufacturers  of its  products to
sanctions, including warning letters, fines, product recalls and seizures.


                                      -13-




COLD REMEDY AND HEALTH AND WELLNESS  PRODUCTS.  The  manufacturing,  processing,
formulation,  packaging,  labeling and advertising of the cold remedy and health
and wellness  products are subject to  regulation by several  federal  agencies,
including:

      o     the FDA;

      o     the Federal Trade Commission ("FTC");

      o     the Consumer Product Safety Commission;

      o     the United States Department of Agriculture;

      o     the United States Postal Service;

      o     the United States Environmental Protection Agency; and

      o     the Occupational Safety and Health Administration.

In  particular,  the FDA  regulates  the safety,  labeling and  distribution  of
dietary  supplements,  including  vitamins,  minerals and herbs, food additives,
food supplements, over-the-counter and prescription drugs and cosmetics. The FTC
also has  overlapping  jurisdiction  with the FDA to regulate the  promotion and
advertising  of  vitamins,  over-the-counter  drugs,  cosmetics  and  foods.  In
addition,  the cold remedy products are homeopathic remedies which are regulated
by the Homeopathic  Pharmacopoeia of the United States  ("HPUS").  HPUS sets the
standards for source,  composition and preparation of homeopathic remedies which
are officially recognized in the Federal Food, Drug and Cosmetics Act of 1938.

PHARMA. The preclinical development,  clinical trials, product manufacturing and
marketing  of Pharma's  potential  new products are subject to federal and state
regulation in the United States and other countries. Clinical trials and product
marketing  and  manufacturing  are subject to the  rigorous  review and approval
processes of the FDA and foreign regulatory authorities. Obtaining FDA and other
required  regulatory  approvals is lengthy and expensive.  Typically,  obtaining
regulatory approval for pharmaceutical  products requires substantial  resources
and takes  several  years.  The  length  of this  process  depends  on the type,
complexity  and  novelty of the  product  and the nature of the disease or other
indication to be treated.  Preclinical studies must comply with FDA regulations.
Clinical  trials  must also comply with FDA  regulations  and may require  large
numbers of test  subjects,  complex  protocols  and possibly  lengthy  follow-up
periods.  Consequently,  satisfaction of government regulations may take several
years,  may cause delays in introducing  potential new products for considerable
periods of time and may require  imposing  costly  procedures upon the Company's
activities.  If regulatory  approval of new products is not obtained in a timely
manner or not at all the Company could be materially adversely affected. Even if
regulatory  approval  of new  products is  obtained,  such  approval  may impose
limitations  on the indicated  uses for which the products may be marketed which
could also materially  adversely  affect the business,  financial  condition and
future operations of the Company.

THE COMPANY'S BUSINESS IS VERY COMPETITIVE AND INCREASED  COMPETITION COULD HAVE
A SIGNIFICANT IMPACT ON EARNINGS.

Both the non-prescription  healthcare product and pharmaceutical  industries are
highly competitive. Many of the Company's competitors have substantially greater
capital resources,  research and development  staffs,  facilities and experience
than it does. These and other entities may have or may develop new technologies.
These  technologies  may be used to  develop  products  that  compete  with  the
Company.

The Company believes that the primary cold remedy product,  Cold-Eeze(R),  has a
competitive  advantage  over  other  cold  remedy  products  because it has been
clinically  proven to reduce the severity and duration of common cold  symptoms.
The Company  believes that Darius has an advantage over its competitors  because
it directly  sells its  proprietary  health and  wellness  products  through its
extensive network of independent distributors.  Competition in Pharma's expected
product areas would most likely come from large pharmaceutical companies as well
as other companies,  universities and research institutions,  many of which have
resources far in excess of the Company's resources.

The Company believes that its ability to compete depends on a number of factors,
including price, product quality, availability, reliability and name recognition
of its cold  remedy,  health  and  wellness  products  and  Pharma's  ability to
successfully  develop  and  market  prescription  medications.  There  can be no
assurance that the Company will be able to compete  successfully  in the future.
If the Company is unable to compete, its earnings may be significantly impacted.


                                      -14-


THE  COMPANY'S  FUTURE  SUCCESS IS  DEPENDENT ON THE  CONTINUED  SERVICES OF KEY
PERSONNEL INCLUDING THE CHAIRMAN OF THE BOARD OF DIRECTORS,  PRESIDENT AND CHIEF
EXECUTIVE OFFICER.

The Company's  future success depends in large part on the continued  service of
key  personnel.  In  particular,  the loss of the  services  of Guy J.  Quigley,
Chairman  of the  Board,  President  and Chief  Executive  Officer  could have a
material adverse effect on operations.  The Company had an employment  agreement
with Mr.  Quigley which expired on December 31, 2005.  Future success and growth
also  depends on the  Company's  ability to continue to  attract,  motivate  and
retain highly qualified employees. If the Company is unable to attract, motivate
and retain qualified employees,  our business and operations could be materially
adversely affected.

THE COMPANY'S  FUTURE SUCCESS DEPENDS ON THE CONTINUED  EMPLOYMENT OF RICHARD A.
ROSENBLOOM, M.D., PH.D., WITH PHARMA.

Pharma's  potential new products are being developed  through the efforts of Dr.
Rosenbloom. The loss of his services could have a material adverse effect on the
Company's product development and future operations.

THE COMPANY'S  FUTURE  SUCCESS IS DEPENDENT ON THE  CONTINUED  ACCEPTANCE OF THE
DIRECT  SELLING   PHILOSOPHY,   THE  MAINTENANCE  OF  THE  NETWORK  OF  EXISTING
INDEPENDENT  DISTRIBUTOR  REPRESENTATIVES  AND  THE  RECRUITMENT  OF  ADDITIONAL
SUCCESSFUL INDEPENDENT DISTRIBUTOR REPRESENTATIVES.

Darius markets and sells herbal  vitamins and dietary  supplements for the human
condition through its network of independent  distributor  representatives.  Its
products are sold to independent distributor  representatives who either use the
products for their own personal  consumption  or resell them to  consumers.  The
independent distributor  representatives receive compensation for sales achieved
by means of a commission structure or compensation plan on certain product sales
of  certain   personnel   within  their   downstream   independent   distributor
representative  network. Since the independent  distributor  representatives are
not employees of Darius,  they are under no  obligation  to continue  buying and
selling  Darius'  products  and the loss of key  high-level  distributors  could
negatively impact the Company's future growth and profitability.

THE COMPANY'S  FUTURE  SUCCESS  DEPENDS ON THE CONTINUED  SALES OF ITS PRINCIPAL
PRODUCT.

For  the  fiscal  year  ended  December  31,  2006,  the  Cold-Eeze(R)  products
represented  approximately  59% of the Company's total sales.  While the Company
has  diversified  into health and wellness  products,  the line of  Cold-Eeze(R)
products continues to be a major part of its business.  Accordingly, the Company
has to  depend on the  continued  acceptance  of  Cold-Eeze(R)  products  by its
customers.  However,  there can be no assurance that the  Cold-Eeze(R)  products
will  continue to receive  market  acceptance.  The  inability  to  successfully
commercialize  Cold-Eeze(R) in the future, for any reason, would have a material
adverse  effect on the  financial  condition,  prospects and ability to continue
operations of the Company.

THE COMPANY HAS A CONCENTRATION OF SALES TO AND ACCOUNTS RECEIVABLE FROM SEVERAL
LARGE CUSTOMERS.

Although the Company has a broad range of  customers  that  includes  many large
wholesalers,  mass  merchandisers and multiple outlet pharmacy chains,  the five
largest  customers  account for a significant  percentage  of sales.  These five
customers  accounted  for 31% of total sales for the fiscal year ended  December
31, 2006 and 29% of total sales for the fiscal year ended  December 31, 2005. In
addition,  customers  comprising the five largest accounts  receivable  balances
represented  56% and 47% of total accounts  receivable  balances at December 31,
2006 and 2005,  respectively.  Credit is  extended  to  customers  based upon an
evaluation of their financial  condition and credit  history,  and collateral is
not generally required.  If one or more of these large customers cannot pay, the
write-off of their accounts  receivable  would have a material adverse effect on
the Company's operations and financial  condition.  The loss of sales to any one
or more of these large  customers  would also have a material  adverse effect on
the operations and financial condition of the Company..

THE COMPANY IS DEPENDENT ON  THIRD-PARTY  MANUFACTURERS  AND  SUPPLIERS  FOR THE
HEALTH AND WELLNESS  PRODUCTS AND THIRD-PARTY  SUPPLIERS FOR CERTAIN OF THE COLD
REMEDY PRODUCTS.

The Company does not  manufacture any of the Health and Wellness  products,  nor
manufacture any of the ingredients in these  products.  In addition,  all active
ingredients  that are raw  materials  used in connection  with the  Cold-Eeze(R)
product are purchased from a single unaffiliated  supplier.  Should any of these
relationships  terminate,  the Company believes that the contingency plans which
have been formulated would prevent a termination  from materially  affecting its
operations.  However, if any of these relationships are terminated, there may be
delays in production of the Company's  products until an acceptable  replacement


                                      -15-


facility  is  located.  The  Company  continues  to look for  safe and  reliable
multiple-location sources for products and raw materials so that it can continue
to  obtain  products  and raw  materials  in the  event of a  disruption  in its
business relationship with any single manufacturer or supplier.  While secondary
sources  have  been  identified  for  some  of the  Company's  products  and raw
materials,  its inability to find other  sources for some of its other  products
and raw  materials  may have a material  adverse  effect on its  operations.  In
addition,  the terms on which manufacturers and suppliers will make products and
raw  materials  available  to us could have a material  effect on the  Company's
success.

THE COMPANY IS  UNCERTAIN AS TO WHETHER IT CAN PROTECT ITS PROPRIETARY RIGHTS.

The strength of the Company's  patent position may be important to its long-term
success.  The  Company  currently  owns eight U.S.  and ten  foreign  patents in
connection  with products that are being developed by Pharma.  In addition,  the
Company has been granted an exclusive  agreement for  worldwide  representation,
manufacturing,  marketing and  distribution  rights to a  zinc/gluconate/glycine
lozenge  formulation.  That  formulation has been patented in the United States,
Germany, France, Italy, Sweden, Canada and Great Britain and a patent is pending
in Japan.  However,  this patent in the United States expired in August 2004 and
expired in June 2005 in all countries except Japan.

There can be no assurance that these patents and the Company's exclusive license
will effectively  protect its products from duplication by others.  In addition,
the Company may not be able to afford the expense of any litigation which may be
necessary to enforce its rights  under any of the patents.  Although the Company
believes that current and future  products do not and will not infringe upon the
patents or violate the  proprietary  rights of others,  if any of the current or
future  products do infringe upon the patents or  proprietary  rights of others,
the Company may have to modify the products or obtain an additional  license for
the  manufacture  and/or  sale of  such  products.  The  Company  could  also be
prohibited  from  selling the  infringing  products.  If the Company is found to
infringe  on the  proprietary  rights of others,  it is  uncertain  whether  the
Company  will be able  to take  corrective  actions  in a  timely  manner,  upon
acceptable terms and conditions,  or at all, and the failure to do so could have
a material adverse effect upon its business, financial condition and operations.

The Company also use  non-disclosure  agreements with its employees,  suppliers,
consultants  and  customers  to  establish  and protect the ideas,  concepts and
documentation  of its  confidential  non-patented  and  non-copyright  protected
proprietary  technology  and  know-how.  However,  these  methods may not afford
complete  protection.  There can be no  assurance  that third  parties  will not
obtain access to or independently develop the Company's technologies,  know-how,
ideas, concepts and documentation, which could have a material adverse effect on
the Company's financial condition.

THE SALES OF THE COMPANY'S PRIMARY PRODUCT FLUCTUATES BY SEASON.

A significant portion of the Company's business is highly seasonal, which causes
major  variations  in operating  results from quarter to quarter.  The third and
fourth quarters generally represent the largest sales volume for the cold remedy
products.  There can be no assurance that the Company will be able to manage its
working capital needs and its inventory to meet the fluctuating demand for these
products.  Failure to  accurately  predict and  respond to  consumer  demand may
result in the production of excess  inventory.  Conversely,  if products achieve
greater  success  than  anticipated  for any given  quarter,  this may result in
insufficient inventory to meet customer demand.

THE COMPANY'S  EXISTING PRODUCTS AND NEW PRODUCTS UNDER  DEVELOPMENT  EXPOSE THE
COMPANY TO POTENTIAL PRODUCT LIABILITY CLAIMS.

The  Company's  business  results in exposure to an inherent  risk of  potential
product  liability  claims,  including claims for serious bodily injury or death
caused by the sales of the Company's  existing  products and the clinical trials
of products  which are being  developed.  These claims could lead to substantial
damage awards.  The Company currently  maintains product liability  insurance in
the amount of, and with a maximum  payout of, $25 million.  A  successful  claim
brought  against us in excess of, or outside  of,  existing  insurance  coverage
could have a material adverse effect on the Company's  results of operations and
financial  condition.  Claims against the Company,  regardless of their merit or
eventual outcome, may also have a material adverse effect on the consumer demand
for its products.

THE COMPANY IS INVOLVED IN LAWSUITS  REGARDING CLAIMS RELATING TO CERTAIN OF THE
COLD-EEZE(R) PRODUCTS AND OTHER BUSINESS MATTERS.

The Company  is, from time to time,  subject to various  legal  proceedings  and
claims,  either  asserted  or  unasserted.  Any  such  claims,  including  those
contained in Item 3 of this  report,  whether  with or without  merit,  could be
time-consuming and expensive to defend and could divert  management's  attention
and resources. While management believes that the Company has adequate insurance
coverage and, if applicable,  accrued loss  contingencies for all known matters,
there is no assurance that the outcome of all current or future  litigation will
not have a material adverse effect on the Company.


                                      -16-


A SUBSTANTIAL  AMOUNT OF THE COMPANY'S  OUTSTANDING COMMON STOCK IS OWNED BY THE
CHAIRMAN OF THE BOARD AND PRESIDENT AND EXECUTIVE  OFFICERS AND DIRECTORS,  AS A
GROUP CAN SIGNIFICANTLY INFLUENCE ALL MATTERS VOTED ON BY STOCKHOLDERS.

Guy J. Quigley,  Chairman of the Board,  President and Chief Executive  Officer,
through his beneficial  ownership,  has the power to vote approximately 27.0% of
The Company's  common stock.  Mr. Quigley and the other  executive  officers and
directors collectively beneficially own approximately 41.2% of the common stock.
These  individuals  have  significant  influence over the outcome of all matters
submitted  to  stockholders  for  approval,  including  election  of  directors.
Consequently,  they exercise  substantial control over all major decisions which
could prevent a change of control of the Company.

THE COMPANY'S STOCK PRICE IS VOLATILE.

The market  price of the  Company's  common  stock has  experienced  significant
volatility.  From January 1, 2003 to January 31,  2007,  the per share bid price
has ranged from a low of approximately $4.75 to a high of approximately  $16.94.
There are several factors which could affect the price of the common stock, some
of which are  announcements  of  technological  innovations  for new  commercial
products by us or competitors,  developments concerning propriety rights, new or
revised  governmental  regulation  or general  conditions  in the market for the
Company's  products.  Sales  of a  substantial  number  of  shares  by  existing
stockholders could also have an adverse effect on the market price of the common
stock.

FUTURE SALES OF SHARES OF THE COMPANY'S  COMMON STOCK IN THE PUBLIC MARKET COULD
ADVERSELY  AFFECT  THE  TRADING  PRICE OF  SHARES  OF THE  COMMON  STOCK AND THE
COMPANY'S ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.

Future sales of substantial  amounts of shares of the Company's  common stock in
the public market, or the perception that such sales are likely to occur,  could
affect prevailing trading prices of the common stock and, as a result, the value
of the notes.  As of December 31,  2006,  the Company had  12,684,633  shares of
common stock outstanding.

The Company also has  outstanding  options to purchase an aggregate of 3,047,000
shares  of  common  stock at an  average  exercise  price of $7.58 per share and
outstanding  warrants to purchase an aggregate of 550,000 shares of common stock
at an average  exercise  price of $10.00 per  warrant.  If the  holders of these
shares,  options or  warrants  were to attempt to sell a  substantial  amount of
their  holdings  at once,  the market  price of the common  stock  would  likely
decline.  Moreover,  the perceived risk of this  potential  dilution could cause
stockholders to attempt to sell their shares and investors to "short" the stock,
a practice  in which an  investor  sells  shares  that he or she does not own at
prevailing  market prices,  hoping to purchase  shares later at a lower price to
cover the sale.  As each of these  events  would  cause the  number of shares of
common stock being offered for sale to increase, the common stock's market price
would likely further decline.  All of these events could combine to make it very
difficult  for the Company to sell equity or  equity-related  securities  in the
future at a time and price that it deems appropriate.

THE COMPANY DOES NOT INTEND TO PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.

The Company has not paid cash dividends on its common stock since inception. The
intention of the Company is to retain earnings,  if any, for use in the business
and  does not  anticipate  paying  any cash  dividends  to  stockholders  in the
foreseeable future.

THE COMPANY'S  ARTICLES OF INCORPORATION AND BY-LAWS CONTAIN CERTAIN  PROVISIONS
THAT MAY BE BARRIERS TO A TAKEOVER.

The Company's  Articles of Incorporation and By-laws contain certain  provisions
which may  deter,  discourage,  or make it  difficult  to assume  control of the
Company by another corporation or person through a tender offer,  merger,  proxy
contest or similar  transaction or series of transactions.  These provisions may
deter a future tender offer or other takeover  attempt.  Some  stockholders  may
believe  such an offer to be in their best  interest  because  it may  include a
premium  over the market  price of the common  stock at the time.  In  addition,
these  provisions  may assist  current  management in retaining its position and
place it in a better position to resist changes which some stockholders may want
to make if dissatisfied with the conduct of the Company's business.

THE COMPANY HAS AGREED TO INDEMNIFY ITS OFFICERS AND DIRECTORS FROM LIABILITY.

Sections  78.7502  and 78.751 of the Nevada  General  Corporation  Law allow the
Company  to  indemnify  any  person  who is or was made a party to, or is or was
threatened to be made a party to, any pending,  completed, or threatened action,
suit or proceeding because he or she is or was a director,  officer, employee or


                                      -17-


agent  of  the  Company  or is or was  serving  at the  Company's  request  as a
director,  officer,  employee or agent of any  corporation,  partnership,  joint
venture,  trust or other  enterprise.  These  provisions  permit the  Company to
advance  expenses to an indemnified  party in connection with defending any such
proceeding,  upon receipt of an  undertaking by the  indemnified  party to repay
those  amounts  if it is later  determined  that the  party is not  entitled  to
indemnification.  These  provisions may also reduce the likelihood of derivative
litigation  against directors and officers and discourage or deter  stockholders
from suing  directors  or officers  for breaches of their duties to the Company,
even though such an action,  if successful,  might otherwise benefit the Company
or its stockholders.  In addition,  to the extent that the Company expends funds
to indemnify  directors and officers,  funds will be unavailable for operational
purposes.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

Not Applicable

ITEM 2.     PROPERTIES

The corporate office of The Quigley  Corporation is located at 621 Shady Retreat
Road,  Doylestown,  Pennsylvania.  This property,  with an area of approximately
13,000 square feet, was purchased in November 1998 and refurbished  during 1999.
The Company occupies  warehouse space in Las Vegas,  Nevada at a current monthly
cost of $2,613. This Nevada location has a three-year lease that expires in July
2009.  In  addition  to storage  facilities  at the  manufacturing  subsidiary's
locations,  the Company also stores product in a number of additional warehouses
in Pennsylvania  with storage charges based upon the quantities of product being
stored.

The manufacturing facilities of the Company are located in each of Elizabethtown
and Lebanon,  Pennsylvania.  The facilities were purchased  effective October 1,
2004. In total, the facilities have a total area of approximately  73,000 square
feet, combining both manufacturing and office space.

The Darius business in Utah is located at 867 East 2260 South, Provo, Utah, with
international  locations  in  Singapore  and Taiwan,  having a combined  area of
approximately  30,400  square  feet.  The  current  monthly  lease cost of these
offices and  warehouse  space is $23,336  with  current  leases set to expire no
later than July 2009.  The Company  expects that these leases will be renewed or
that alternative spaces will be obtained.

The Company believes that its existing facilities are adequate at this time.

ITEM 3.     LEGAL PROCEEDINGS

              TESAURO AND ELEY, ET AL. VS. THE QUIGLEY CORPORATION
                  (CCP OF PHILA., AUGUST TERM 2000, NO. 001011)

In September,  2000, the Company was sued by two individuals  (Jason Tesauro and
Elizabeth Eley, both residents of Georgia), allegedly on behalf of a "nationwide
class" of  "similarly  situated  individuals,"  in the Court of Common  Pleas of
Philadelphia  County,  Pennsylvania.  The  Complaint  further  alleges  that the
plaintiffs  purchased  certain  Cold-Eeze  products  between  August,  1996, and
November, 1999, based upon cable television,  radio and internet advertisements,
which  allegedly  misrepresented  the  qualities  and benefits of the  Company's
products. The Complaint, as pleaded originally,  requested an unspecified amount
of damages for violations of Pennsylvania's  consumer  protection law, breach of
implied warranty of merchantability and unjust enrichment, as well as a judicial
determination that the action be maintained as a class action. In October, 2000,
the Company filed  Preliminary  Objections to the Complaint seeking dismissal of
the  action.   The  court  sustained  certain   objections,   thereby  narrowing
plaintiffs' claims.

In May 2001,  plaintiffs  filed a motion to  certify  the  putative  class.  The
Company  opposed  the motion.  In  November,  2001,  the court held a hearing on
plaintiffs' motion for class certification.  In January,  2002, the court denied
in part and granted in part  plaintiffs'  motion.  The court denied  plaintiffs'
motion to  certify a class  based on  plaintiffs'  claims  under  Pennsylvania's
consumer   protection  law,  under  which  plaintiffs   sought  treble  damages,
effectively  dismissing  this cause of action;  however,  the court  certified a
class  based on  plaintiffs'  secondary  breach of implied  warranty  and unjust
enrichment claims. In August, 2002, the court issued an order adopting a form of
Notice of Class Action to be published  nationally.  The form of Notice approved
by the court included a provision  which limits the potential  class members who
may  potentially  recover  damages in this action to those persons who present a
proof of purchase of Cold-Eeze during the period August 1996 and November 1999.

Afterward,  a series of pre-trial  motions were filed raising issues  concerning
trial  evidence  and the court's  jurisdiction  over the  subject  matter of the
action. In March, 2005, the court held oral argument on these motions.


                                      -18-


On  November  8, 2006,  the Court  entered an Order  dismissing  the case in its
entirety  on the basis  that the  action  was  preempted  by  federal  law.  The
plaintiffs  appealed  the Court's  decision in  December,  2006.  Presently,  no
scheduling order has been entered by the appellate court,  which presumably will
hear argument later this year.

For the reasons stated by the Court in dismissing the case, as well as for other
reasons,  the Company  believes  that  plaintiffs'  case on appeal  lacks merit;
however, no prediction as to the outcome of the appeal can be made.

               THE QUIGLEY CORPORATION VS. JOHN C. GODFREY, ET AL
                          (BUCKS CO. CCP, NO. 04-07776)

In this action,  which was  commenced in November  2004,  the Company is seeking
declaratory and injunctive  relief against John C. Godfrey,  Nancy Jane Godfrey,
and Godfrey Science and Design, Inc. requesting  injunctive relief regarding the
Cold-Eeze trade name and trademark;  injunctive relief relating to the Cold-Eeze
formulations and manufacturing methods; injunctive relief for breach of the duty
of  loyalty,   and  declaratory   judgment  pending  the  Company's  payment  of
commissions  to  defendants.  The Company's  Complaint is based in part upon the
Exclusive Representation and Distribution Agreement and the Consulting Agreement
(together the "Agreements") entered into between the defendants and the Company.
The Company  terminated  the  Agreements for the  defendants'  alleged  material
breaches of the Agreements.  Defendants have answered the complaint and asserted
counterclaims  against the Company seeking remedies  relative to the Agreements.
The Company believes that the defendants' counterclaims are without merit and is
vigorously  defending those  counterclaims  and is prosecuting its action on its
complaint.  The deposition phase of pre-trial discovery is about to commence. At
this time no prediction as to the outcome of this action can be made.

          DARIUS INTERNATIONAL INC., ET AL. VS. ROBERT O. YOUNG ET AL.
                 (FEDERAL DISTRICT COURT - EASTERN DISTRICT, PA)

In this action, the Company seeks injunctive relief and monetary damages against
two individuals for violation of a  non-competition  agreement  between a wholly
owned subsidiary of the Company,  Innerlight,  Inc., and the defendants, each of
whom are also under agreement to serve as consulting to the Company.

In late November,  2005, the Company  learned that the defendants had launched a
line of nutritional  supplement products that competed with Innerlight products.
Defendants promoted their line of products by a website,  among other means. The
Company moved for a temporary  restraining  order against the defendants,  which
the court denied; however, the court ordered expedited discovery and scheduled a
preliminary  injunction  hearing.  Before the hearing,  the Company  amended its
complaint to add counts  against  defendants for unfair  competition,  trademark
infringement and other causes, which the court allowed. In response,  defendants
initially  moved to dismiss the case.  The court  denied the motion.  Defendants
answered the  complaint and asserted nine  counterclaims,  including:  breach of
contract;  breach of covenant of good faith and fair dealing; unjust enrichment;
conversion; common law trademark infringement; common law violation of the right
to publicity;  violation of abuse of personal identity act;  injunctive  relief;
and declaratory relief.

After the preliminary  injunction  hearing,  held in January,  2006, the parties
briefed the court on the significance of the hearing evidence in relation to the
parties'  respective  claims. On February 17, 2006, the court held oral argument
on the motion for preliminary injunction.

On April  20,  2006,  the  Court  entered  an Order  enjoining  defendants  from
competing  against the  Company.  Thereafter,  the parties  engaged in pre-trial
discovery.

A trial on the merits of the case was held  before  the  Court,  without a jury,
during  November  2006.  Following  the  presentation  of evidence,  the Company
renewed its claim for a permanent  injunction and monetary  damages  against the
defendants. Based upon the evidence presented at trial, the Company believes the
counterclaim actions are without merit.

The  Court  has not  entered  its  ruling  at this  point,  and at this  time no
prediction as to the outcome can be made.


                                      -19-


          BRIGITTE YVON & KLAUS YVON VS. THE QUIGLEY CORPORATION, ET AL

On October 12, 2005,  the  Plaintiffs  instituted  an action  against  Caribbean
Pacific Natural  Products,  Inc. and other defendants for personal injuries as a
result of being hit by a chair on the pool deck of Waikoloa Beach Marriott Hotel
d/b/a Outrigger Enterprises,  Inc. in Honolulu, Hawaii. On December 9, 2005, The
Quigley Corporation was added as an additional  defendant without notice to this
case. The main defendant in the case is Caribbean Pacific Natural Products, Inc.
in which The Quigley  Corporation  formerly held stock.  On January 22, 2003 all
shares of The Quigley Corporation stock were sold to Suncoast Naturals,  Inc. in
return for stock of Suncoast  Naturals,  Inc. At the time of the  accident,  The
Quigley  Corporation  had no  ownership  interest in Caribbean  Pacific  Natural
Products, Inc.

The Corporation  believes that the  plaintiffs'  claims are without merit and is
vigorously  defending  this  action.  At the  present  time this matter is being
defended by the Company's liability insurance carrier and a motion to dismiss is
pending  before  the  Federal  District  in  Honolulu,  Hawaii.  At this time no
prediction as to the outcome can be made.


                 NICODROPS, INC. VS. QUIGLEY MANUFACTURING, INC.

On January 30, 2006, Quigley Manufacturing,  Inc., a wholly-owned  subsidiary of
The  Quigley  Corporation,  was put on  notice  of a claim  by  Nicodrops,  Inc.
Nicodrops,  Inc. has claimed that the packaging contained  incorrect  expiration
dates and caused it to lose sales through two (2)  retailers.  The total alleged
sales  of  Nicodrops  was  approximately  $250,000  and  Nicodrops  is  claiming
unspecified damages exceeding $2,000,000.

No suit has been filed.  The Company is investigating  this claim.  Based on its
investigation to date, the Company believes the claim is without merit. However,
at this time no prediction can be made as to the outcome of this case.

  THE QUIGLEY CORPORATION VS. WACHOVIA INSURANCE SERVICES, INC. AND FIRST UNION
                         INSURANCE SERVICES AGENCY, INC.

The Quigley Corporation  instituted a Writ of Summons against Wachovia Insurance
Services,  Inc. and First Union Insurance  Services Agency,  Inc. on December 8,
2005. The purpose of this suit was to maintain an action and toll the statute of
limitation  against The  Quigley  Corporation's  insurance  broker who failed to
place excess  limits  coverage for the Company for the period from  November 29,
2003  until  April 6,  2004.  As a result of the  defendant's  failure  to place
insurance and to notify Quigley of its actions,  certain pending actions covered
by  Quigley's  underlying  insurance  at the present time many result in certain


                                      -20-


cases presently being defended by insurance counsel and the underlying insurance
carrier  to cause an  exhaustion  of the  underlying  insurance  for the  policy
periods  ending  November 29, 2004 and  November 29, 2005.  Any case in which an
alleged action arose by the use of Cold-Eeze  Nasal Spray from November 29, 2003
to April 6, 2004 is not covered by excess insurance.

The Company's claim against Wachovia  Insurance  Services,  Inc. and First Union
Insurance  Services Agency,  Inc. is for negligence and for equitable  insurance
for these  claims in the event  that  Quigley's  underlying  policy  limits  are
exhausted.  As of the date of this letter there is no  exhaustion  of underlying
coverage and the action  against  Wachovia  Insurance  Services,  Inc. and First
Union Insurance  Services  Agency,  Inc. cannot be prosecuted until such time as
actual damages can be measured.  At this time no prediction as to the outcome of
the cases covered by insurance  can be made and no prediction  can be made as to
the outcome of any action against Wachovia  Insurance  Services,  Inc. and First
Union Insurance Services Agency, Inc.

                     MONIQUE FONTENOT DOYLE VS. THE QUIGLEY
                         CORPORATION (U.S.D.C., W.D. LA.
                             DOCKET NO.: 6:06CV1497)

On August 31, 2006,  the  plaintiff  filed an action  against the Company in the
United   States   District   Court  for  the  Western   District  of   Louisiana
(Lafayette-Opelousas  Division).  The  action  alleges  the  plaintiff  suffered
certain  losses and injuries as a result of the Company's  nasal spray  product.
Among the allegations of plaintiff are breach of express  warranties and damages
pursuant to the Louisiana products liability act.

A trial date has been set for January 7, 2008.  Discovery  is not yet  complete.
The Company believes the plaintiff's  claims are without merit and is vigorously
defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.

   ZANG ANGELFIRE, TRACEY ARVIN, RAYMOND BELL, JEFFREY BROWN, SHANE HOHNSTEIN,
  TAMMY LAURENT, KRISTI MARTIN, LARRY RICHARDSON, LARRY RIGSBY, BARBARA SEOANE,
     DONNA SMALLEY, MARJORIE VAN BENTHEM AND JOHN WILLIAMS VS. THE QUIGLEY
                                   CORPORATION
             (PA. C.C.P., BUCKS COUNTY, DOCKET NO.: 2004-07364-27-2)

On November 4, 2004, seven (7) plaintiffs filed an action in the Court of Common
Pleas of Bucks  County,  Pennsylvania,  against the Company.  The  complaint was
amended  on March 11,  2005 to add an  additional  eight (8)  plaintiffs  in the
action. Subsequently, two plaintiffs dismissed their suit, leaving thirteen (13)
plaintiffs remaining.  The action alleges the plaintiffs suffered certain losses
and  injuries  as a result of using  the  Company's  nasal  spray  product.  The
plaintiffs  claim  the  Company  is  liable  to  them  based  on  the  following
allegations:   negligence,  strict  products  liability  (failure  to  warn  and
defective design), breach of express warranty,  breach of implied warrant, and a
violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law
and other consumer protection statutes.

A trial date has been set for September 24, 2007. Discovery is not yet complete.
The Company is  vigorously  defending  this lawsuit and believes that the action
lacks merit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.

         HOWARD POLSKI AND SHERYL POLSKI VS. THE QUIGLEY CORPORATION, ET
              AL. (U.S.D.C., D. MINN. DOCKET NO.: 04-4199 PJS/JJG)

On August  12,  2004,  plaintiffs  filed an action  against  the  Company in the
District  Court for  Hennepin  County,  Minnesota,  which was not  served  until
September 2, 2004.  On September 17, 2004,  the Company  removed the case to the
United States  District Court for the District of Minnesota.  The action alleges
that  plaintiffs  suffered  certain  losses  and  injuries  as a  result  of the
Company's  nasal  spray  product.   Among  the  allegations  of  plaintiffs  are
negligence,  products liability,  breach of express and implied warranties,  and
breach of the Minnesota Consumer Fraud Statute.


                                      -21-


The Company believes the plaintiffs'  claims are without merit and is vigorously
defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.

            DOMINIC DOMINIJANNI, SONJA FORSBERG-WILLIAMS, VINT PAYNE,
         MURRAY LOU ROGERS, AND RANDY STOVER VS. THE QUIGLEY CORPORATION
               (PA. C.C.P., BUCKS COUNTY, DOCKET NO.: 060013427-1;
                 CONSOLIDATED UNDER DOCKET NO.: 2004-07364-27-2)

On January 6, 2006,  five (5) plaintiffs  filed an action in the Court of Common
Pleas of Bucks County, Pennsylvania, against the Company. The action alleges the
plaintiffs  suffered  certain  losses  and  injuries  as a result  of using  the
Company's  nasal  spray  product.  The  complaint  was served on the  Company on
January 31,  2006.  Plaintiffs'  complaint  consists  of counts for  negligence,
strict  products  liability   (failure  to  warn),   strict  products  liability
(defective  design),  breach of express and implied  warranties,  and violations
under the  Pennsylvania  Unfair Trade Practices and Consumer  Protection Law and
other consumer protection statutes.

Discovery is not yet complete.  The Company believes the plaintiffs'  claims are
without merit and is vigorously defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.

                 GREG SCRAGG VS. THE QUIGLEY CORPORATION, ET AL.
               (U.S.D.C, D. COLO. DOCKET NO.: 06- 00061 LTB-CBS)

On November  30, 2005,  an action was brought in the  District  Court of Denver,
Colorado.  The complaint was served on the Company soon  thereafter.  The action
alleges the plaintiff  suffered certain losses and injuries as a result of using
the Company's  nasal spray product.  The complaint  consists of counts for fraud
and  deceit  (fraudulent  concealment),   negligent  misrepresentation,   strict
liability (failure to warn), and strict product liability (design defect).

A trial date has been set for August 27, 2007.  Discovery  is not yet  complete.
The Company believes the plaintiff's  claims are without merit and is vigorously
defending this lawsuit.

At the  present  time  this  matter is being  defended  by the  Company  and the
Company's  liability  insurance carrier.  Based upon the information the Company
has at this time, it believes the action will not have a material  impact to the
Company. However, at this time no prediction as to the outcome can be made.

                   BONNIE L. HURD. VS. THE QUIGLEY CORPORATION
              (PA. C.C.P., BUCKS COUNTY, DOCKET NO.: 06-10055-13-2)

On October 31, 2006,  plaintiff  filed an action in the Court of Common Pleas of
Bucks  County,  Pennsylvania.  The  complaint  was  served on the  Company  soon
thereafter.  The  action  alleges  the  plaintiff  suffered  certain  losses and
injuries as a result of using the  Company's  nasal spray  product.  Plaintiff's
complaint consists of counts for negligence,  strict products liability (failure
to warn), strict products liability  (defective  design),  breach of express and
implied warranties, and violations under the Pennsylvania Unfair Trade Practices
and Consumer Protection Law and other consumer protection statutes.

Discovery is not yet complete.  The Company believes the plaintiff's  claims are
without merit and is vigorously defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.


                                      -22-


            CAROLYN HENRY BAYNHAM VS. THE QUIGLEY CORPORATION, ET AL.
                  (U.S.D.C, E.D. TEX. DOCKET NO.: 1:07CV0010)

On January  8, 2007,  plaintiff  filed an action in the United  States  District
Court for the Eastern  District of  Texas-Beaumont  Division.  The complaint was
served on the  Company on January 15,  2007.  The action  alleges the  plaintiff
suffered  certain  losses and injuries as a result of using the Company's  nasal
spray product.  Plaintiff's complaint consists of counts for negligence,  strict
products  liability  (failure to warn),  strict  products  liability  (defective
design), and breach of express and implied warranties.

Discovery is not yet complete.  The Company believes the plaintiff's  claims are
without merit and is vigorously defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.

                 CAROLYN SUNDERMEIER VS. THE QUIGLEY CORPORATION
             (PA. C.C.P., BUCKS COUNTY, DOCKET NO.: 07-01324-26-2)

On February 16, 2007,  plaintiff filed an action in the Court of Common Pleas of
Bucks County, Pennsylvania.  The complaint was served on the Company on February
20, 2007. The action alleges the plaintiff  suffered certain losses and injuries
as a result of using the Company's  nasal spray product.  Plaintiff's  complaint
consists of counts for negligence,  strict products liability (failure to warn),
strict  products  liability  (defective  design),  breach of express and implied
warranties,  and violations  under the  Pennsylvania  Unfair Trade Practices and
Consumer Protection Law and other consumer protection statutes.

Discovery is not yet complete.  The Company believes the plaintiff's  claims are
without merit and is vigorously defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.

            ROBERT O. AND SHELLEY YOUNG VS. DARIUS INTERNATIONAL INC.
               AND INNERLIGHT INC., (UTAH THIRD PARTY COMPLAINTS)

On September 14, 2005, a third-party  complaint was filed by Shelley R. Young in
Fourth  District  Court in Provo,  Utah against  Innerlight  Inc. and its parent
company,  Darius.  Robert O. Young has filed a motion to  intervene to join as a
third-party  plaintiff with Shelley R. Young.  On November 3, 2005,  Shelley and
Robert Young filed a parallel suit also in Fourth District Court in Provo, Utah.
The allegations in both complaints  include,  but are not limited to, an alleged
breach of contract by  Innerlight  Inc.  for  alleged  failures to make  certain
payments  under  an  asset  purchase  agreement  entered  into  by all  parties.
Additional  allegations  stem from this  alleged  breach of  contract  including
unjust  enrichment,  trademark  infringement and alleged  violation of rights of
publicity.  The  plaintiffs  are seeking both  monetary and  injunctive  relief.
Innerlight Inc. has objected to the complaint in the third-party action based on
procedural deficiencies and other grounds.

The Fourth  District  Court of Utah has stayed both the  September  14, 2005 and
November 3, 2005 actions pending the  adjudication of the Federal District Court
action  referenced  above and has ordered that all disputes be determined in the
Federal District Court action in the Eastern District of Pennsylvania.

In  connection  with the Utah  actions the Company has sued the Youngs in United
States District Court for the Eastern District of Pennsylvania.  The Company has
alleged   breach  of   contract,   including   but  not  limited  to  breach  of
non-competition  provisions in a consulting agreement between the parties and is
seeking unspecified damages and injunctive relief.


                                      -23-


                    INNERLIGHT INC. VS. THE MATRIX GROUP, LLC

          (FOURTH JUDICIAL DISTRICT COURT, UTAH COUNTY, STATE OF UTAH)

On March 13, 2006  Innerlight  Inc. filed a declaratory  judgment  action in the
Fourth Judicial District,  Utah County, State of Utah,  requesting a declaration
that there is no valid contract  between the parties.  The Matrix Group, LLC has
alleged there is a contract  between the parties  obligating  Innerlight Inc. to
purchase  $750,000 of products for the 12-month  period  commencing  October 18,
2004 and ending October 17, 2005,  $1,500,000 for the period commencing  October
18, 2005 and ending October 17, 2006, and for each 12-month  period  thereafter,
through and including October 17, 2013, at least $4,000,000 of products from The
Matrix Group, LLC. The document on which Matrix relies was drafted by Matrix and
states that the acceptance of the appointment by distributor  (Innerlight  Inc.)
is conditioned upon  distributor's  written  acceptance of the Company's product
price list.  No written  acceptance  of the product  price list was ever made by
Innerlight Inc.

The  Matrix  Group,  LLC filed a Utah Rule of Civil  Procedure  12(b)(3)  motion
asking  that the  complaint  be  dismissed.  On July 13,  2006 the Court for the
Fourth Judicial District,  Utah County,  State of Utah, entered an order denying
defendant's  motion  to  dismiss  under  Rule  12(b)(3)  based  on  Innerlight's
assertion  that a  material  condition  precedent  remains  to be  satisfied  to
establish an enforceable  agreement  between the parties.  The Utah County Court
has maintained  jurisdiction of this action to make a final determination on the
merits of Innerlight's claim.

Thereafter,  Matrix filed a counterclaim  alleging that a contract did exist and
that  Innerlight  had breached this  contract.  Both parties then agreed to stay
discovery,  concluding  that  discovery was not necessary and both filed motions
for summary judgment to resolve the case.

On January 17, 2007, arguments were presented to the Court on the parties' cross
motions for summary judgment and the Court ruled in Innerlight's favor,  finding
that no contract existed between the parties and that Innerlight was entitled to
return over $150,000 in product to Matrix for reimbursement.  The wording of the
final  Order  granting  Innerlight's  motion and  rejecting  Matrix's  claims is
currently being exchanged and has yet to be entered by the Court. When the Order
is entered by the Court, Matrix has the right to appeal.

                   THE MATRIX GROUP, LLC VS. INNERLIGHT, INC.

           (U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA)

On July 6, 2006 The Matrix Group,  LLC commenced an action  against  Innerlight,
Inc. in the United States  District Court for the Southern  District of Florida.
The  action  brought  by The  Matrix  Group,  LLC  relates to the same facts and
circumstances  as the  action  commenced  in March of 2006 by  Innerlight,  Inc.
against The Matrix Group,  LLC in Utah County,  Utah.  The Matrix Group,  LLC is
claiming that according to the terms of the alleged contract, Innerlight has the
obligation  to purchase  $28,750,000  of  additional  product from April 6, 2006
through  October  17,  2013 and that The  Matrix  Group,  LLC is  entitled  to a
judgment against Innerlight, Inc. for alleged obligations to purchase product in
the amount of $744,050  from the period of October 18,  2005  through  April 17,
2006. The United States District Court for the Southern  District of Florida has
stayed the action pending the outcome of the previously  referenced  Utah action
between Innerlight Inc. and The Matrix Group, LLC.


The Company  believes that the  plaintiff's  (The Matrix Group,  LLC) claims are
without merit and is vigorously  defending  those claims and is prosecuting  its
action on its complaint in Utah.  Based upon the  information the Company has at
this time, it believes that the plaintiff's actions are without merit.  However,
at this time no prediction as to the outcome can be made.

                          TERMINATED LEGAL PROCEEDINGS

            ROBERT CAFFREY AND SUE ANNE CAFFREY, H/W VS. THE QUIGLEY
                               CORPORATION, ET AL.
                 (U.S.D.C., D.N.J. DOCKET NO.: 05-05608-KSH-PS)

On  October  12,  2005,  the  plaintiffs  filed an action  against  The  Quigley
Corporation  (the "Company") in the Superior Court of New Jersey,  Essex County,
which was not served until  November 9, 2005. On November 28, 2005,  the Company
removed the case to the United  States  District  Court for the  District of New
Jersey (Newark  Vicinage).  The complaint was amended on July 21, 2006 to add an
additional  defendant,  DPT  Laboratories,  Ltd.  The  action  alleges  that the
plaintiff  suffered  certain  losses and  injuries as a result of the  Company's
nasal spray product.  Among the  allegations  of plaintiffs are strict  products
liability,  breach of express  warranties,  violation of New  Jersey's  Consumer
Fraud Act and a loss consortium claim.

This case was recently settled at the direction of the insurance  carrier out of
insurance proceeds.


                                      -24-


                    DOLORES SMITH VS. THE QUIGLEY CORPORATION
              (PA. C.C.P., BUCKS COUNTY, DOCKET NO.: 0503401-18-1)

On May 25,  2005,  a complaint  was filed in the Court of Common  Pleas of Bucks
County,  Pennsylvania.  The complaint was served on the Company on or about June
14, 2005. The  plaintiff's  complaint  consists of counts of negligence,  strict
product liability,  breach of express warranty,  breach of implied warranty, and
violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law
and other  Consumer  Protection  Statutes  relating to the use of the  Company's
Cold-Eeze Nasal Spray Product.

The plaintiff has recently  agreed to dismiss her complaint  with  prejudice and
the appropriate court filings are currently being finalized.

                RICHARD FLYNN VS. THE QUIGLEY CORPORATION, ET AL

On May 20, 2005, a complaint was filed in the Superior  Court of Orange  County,
California.  The action alleged that the plaintiff  suffered  certain losses and
injuries as a result of using the Company's  nasal spray product.  The complaint
consisted of causes of action sounding in negligence,  products  liability,  and
punitive damages. The lawsuit has been resolved in exchange for the payment of a
nominal sum out of insurance proceeds at the direction of the insurance carrier.

The case was recently  settled at the direction of the insurance  carrier out of
insurance proceeds.

               KEITH J. KOCHIE VS. THE QUIGLEY CORPORATION, ET AL

On August 2, 2005, a complaint was filed in the United States District Court for
the Eastern  District of New York. The complaint was served on the Company on or
about  September  1, 2005.  The  plaintiff's  complaint  consisted of counts for
negligence,  strict product  liability,  breach of express  warranty,  breach of
implied  warranties,   fraudulent  misrepresentation,   fraudulent  concealment,
negligent  misrepresentation,  and fraud and deceit  relating  to the use of the
Company's Cold-Eeze Nasal Spray Product.

This case was recently settled at the direction of the insurance  carrier out of
insurance proceeds.

               GARRY KOMINAKIS VS. THE QUIGLEY CORPORATION, ET AL

On December 13, 2005,  an action was brought in the Superior  Court of the State
of California (Western Division - Los Angeles).  The complaint was served on the
Company on December 27, 2005. The case was removed to Federal  District Court on
January 25, 2006. The action alleged that the plaintiff  suffered certain losses
and  injuries  as a result of using  the  Company's  nasal  spray  product.  The
complaint  consisted  of  counts  for  strict  liability  (products  liability),
negligence, and breach of implied and express warranties.

This case was recently settled at the direction of the insurance  carrier out of
insurance proceeds.

                  PAIGE D. DAVISON VS. THE QUIGLEY CORPORATION

On  February  26,  2004,  the  plaintiff  filed an action  against  The  Quigley
Corporation  (the  "Company"),  which was not served  until  April 5, 2004.  The
action  alleged that the  plaintiff  suffered  certain  losses and injuries as a
result of using the Company's nasal spray product.  Among the allegations of the
plaintiff  were that the nasal spray was defective and  unreasonably  dangerous,
lacked proper and adequate warnings and/or instructions, and was not fit for the
purposes and uses intended.

This case was recently settled at the direction of the insurance  carrier out of
insurance proceeds.

                CYNTHIA AARON VS. THE QUIGLEY CORPORATION, ET AL

On March 15,  2005, a complaint  was filed in the  Superior  Court for San Diego
County, California.  This complaint was served on the Company on April 21, 2005.
The plaintiff's  complaint consisted of causes of action sounding in negligence,
negligent products liability,  breach of warranty of merchantability,  breach of
express  warranty,  strict  products  liability and failure to warn.  The action
alleged that the plaintiff  suffered  certain losses and injuries as a result of
using the Company's nasal spray product.

This case was recently settled at the direction of the insurance  carrier out of
insurance proceeds.

            AXIS SPECIALTY INSURANCE CO. VS. THE QUIGLEY CORPORATION
                          (E.D. PA CIVIL NO. 05-CV-195)

This action,  filed in January 2005 in the Federal  Eastern  District  Court for
Pennsylvania,  stems from a dispute  between  the  Company and one of its excess
liability insurance carriers,  who seeks a judicial declaration of its insurance
coverage  obligations  under a  policy  which  terminates  in  March  2005.  The
carrier's  action follows a complaint by the Company filed in December 2004 with


                                      -25-


the Pennsylvania  Insurance Commission,  which ultimately sided with the Company
in determining that the carrier failed to observe proper notification procedures
when it first sought to limit,  or  alternatively,  to insure at a substantially
higher premium,  its coverage  obligations.  This action seeks to deny insurance
coverage for certain  product  liability  claims based on  occurrences  prior to
April 6, 2004.

The Company filed a counterclaim  requesting a declaration of insurance coverage
under the insurance policy referenced above. The litigation  potentially affects
the amount of the  Company's  liability  coverage  for the nasal spray  personal
injury  litigation  described above. An order dated February 16, 2006 found that
Axis has no obligation to extend coverage for certain product  liability  claims
based on  occurrences  prior to April 6, 2004 but does cover  occurrences  after
that date  through  November  29,  2006.  The  Company  has  purchased  extended
reporting  coverage for claims after April 6, 2004 through November 29, 2006 for
occurrences  between April 4, 2004 and November 29, 2005.  The Court granted the
Company's  motion that a "claim" within the meaning of the Axis policy must be a
claim for damages for personal injury or property damages.

Based upon the  information the Company has at this time relative to the defense
of claims  occurring  before April 6, 2004, the Company  believes the claims are
without merit and is fully  defending  those claims through  insurance  counsel.
However, at this time no prediction as to the outcome can be made of these cases
and  whether  insurance  coverage  from the  period  prior  to April 6,  2004 is
adequate for coverage of all claims.


ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None
                                     PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
            MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

PERFORMANCE CHART

The following  graph reflects a five-year  comparison,  calculated on a dividend
reinvested basis, of the cumulative total stockholder return on the Common Stock
of the  Company,  a "peer group" index  classified  as drug related  products by
Hemscott Group Ltd.,  ("Hemscott  Group Index") and the NASDAQ Market Index. The
comparisons  utilize an  investment of $100 on December 31, 2001 for the Company
and the  comparative  indices,  which then  measure the values for each group at
December 31 of each year presented. There can be no assurance that the Company's
stock  performance will continue with the same or similar trends depicted in the
following performance graph.

             COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
         COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKET

 Company/Index/Market    2001    2002     2003    2004    2005    2006
THE QUIGLEY CORPORATION 100.00  239.13   462.61  366.43  600.87  247.39
 HEMSCOTT GROUP INDEX   100.00  100.19   185.17  204.06  162.93  225.23
  NASDAQ MARKET INDEX   100.00   69.75   104.88  113.70  116.19  128.12


MARKET INFORMATION

The Company's Common Stock,  $.0005 par value, is currently traded on The NASDAQ
National  Market  under the  trading  symbol  "QGLY." The price set forth in the
following table  represents the high and low bid prices for the Company's Common
Stock.

                                                Common Stock
                                                ------------
                                           2006               2005
                                     --------------     ---------------
                  Quarter Ended       High     Low       High      Low
                  -------------       ----     ---       ----      ---

                  March 31           $15.95   $8.02      $8.85    $7.27

                  June 30            $12.35   $8.19      $9.28    $7.79

                  September 30        $9.50   $7.00     $10.50    $8.41

                  December 31         $7.99   $5.31     $16.94    $7.25

Such quotations  reflect  inter-dealer  prices,  without  mark-up,  mark-down or
commission and may not represent actual transactions.


                                      -26-


The  Company's   securities  are  traded  on  The  NASDAQ  National  Market  and
consequently  stock  prices  are  available  daily as  generated  by The  NASDAQ
National Market established quotation system.

HOLDERS

As of December 31, 2006, there were  approximately  310 holders of record of the
Company's  Common Stock,  including  brokerage firms,  clearing  houses,  and/or
depository firms holding the Company's  securities for their respective clients.
The exact number of beneficial  owners of the Company's  securities is not known
but exceeds 400.

DIVIDENDS

The Company has not declared,  nor paid, any cash dividends on its Common Stock.
At this time the Company intends to retain its earnings to finance future growth
and maintain liquidity.

WARRANTS AND OPTIONS

In addition to the Company's outstanding Common Stock, there are, as of December
31, 2006, issued and outstanding Common Stock Purchase Warrants and Options that
are exercisable at the price-per-share  stated and expire on the date indicated,
as follows:

      Description          Number       Exercise Price    Expiration Date
      -----------          ------       --------------    ---------------
      CLASS "G"            550,000         $10.0000       May 5, 2007
      Option Plan          396,500          $9.6800       December 1, 2007
      Option Plan          331,000           $5.125       April 6, 2009
      Option Plan          260,750          $0.8125       December 20, 2010
      Option Plan          277,000          $1.2600       December 10, 2011
      Option Plan          311,250          $5.1900       July 30, 2012
      Option Plan           62,500          $5.4900       December 17, 2012
      Option Plan          404,000          $8.1100       October 29, 2013
      Option Plan          484,000          $9.5000       October 26, 2014
      Option Plan          520,000         $13.8000       December 11, 2015

At December 31, 2006,  there were 3,597,000  unexercised  and vested options and
warrants of the Company's Common Stock available for exercise.

SECURITIES AUTHORIZED UNDER EQUITY COMPENSATION

The following  table sets forth certain  information  regarding stock option and
warrant grants made to employees, directors and consultants:

       SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

                                                                   Number of
                                                                  Securities
                                                                   Remaining
                                     Number of                   Available for
                                    Securities     Weighted     Future Issuance
                                   to be Issued     Average      Under Equity
                                       Upon        Exercise   Compensation Plans
                                    Exercise of    Price of       (Excluding
                                    Outstanding   Outstanding     Securities
                                     Options &     Options &     Reflected in
          Plan Category              Warrants      Warrants        Column A)
                                       (A)           (B)              (C)
--------------------------------------------------------------------------------

Equity Plans Approved by Security
   Holders (1)                       3,047,000       $7.58         1,198,750
Equity Plans Not Approved by
   Security Holders (2)                550,000      $10.00              --
Total                                3,597,000       $7.95         1,198,750

(1) An incentive  stock  option plan was  instituted  in 1997,  (the "1997 Stock
    Option Plan") and approved by the stockholders in 1998.  Options pursuant to
    the 1997  Stock  Option  Plan  have been  granted  to  directors,  executive
    officers, and employees.

(2) Other grants of warrants are specific and not part of a plan. These specific
    grants were to executive officers, employees and consultants for services in
    1996 and 1997.


                                      -27-


ITEM 6.     SELECTED FINANCIAL DATA

The following  table sets forth the selected  financial  data of the Company for
and at the end of the years ended December 31, 2006, 2005, 2004, 2003 and 2002.

The data  presented  below  should  be read in  conjunction  with  "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and the
Company's financial statements and notes thereto appearing elsewhere herein.

(Amounts in thousands, except              Year Ended      Year Ended     Year Ended     Year Ended      Year Ended
   per share data)                        December 31,    December 31,   December 31,   December 31,    December 31,
                                              2006            2005           2004           2003            2002
                                          ------------    ------------   ------------   ------------    ------------
STATEMENT OF INCOME DATA:
Net sales                                   $ 42,125        $ 53,658       $ 43,948       $ 41,499        $ 29,272
Total revenue                               $ 42,125        $ 53,658       $ 43,948       $ 41,499        $ 29,421
Gross profit                                $ 22,878        $ 27,834       $ 20,375       $ 20,011        $ 12,212
Income (loss) - continuing operations       ($ 1,748)       $  3,217       $    453       $    729       ($  5,132)
Loss - discontinued operations (1)                --              --             --      ($     54)      ($  1,322)
Net income (loss)                           ($ 1,748)       $  3,217       $    453       $    675       ($  6,454)

Basic earnings (loss) per share:
       Continuing operations                ($  0.14)       $   0.28       $   0.04       $   0.06       ($   0.47)
       Discontinued operations                    --              --             --             --       ($   0.12)
       Net income (loss)                    ($  0.14)       $   0.28       $   0.04       $   0.06       ($   0.59)
Diluted earnings (loss) per share:
       Continuing operations                ($  0.14)       $   0.24       $   0.03       $   0.05       ($   0.47)
       Discontinued operations                    --              --             --             --       ($   0.12)
       Net income (loss)                    ($  0.14)       $   0.24       $   0.03       $   0.05       ($   0.59)
Weighted average shares outstanding:
       Basic                                  12,245          11,661         11,541         11,467          10,894
       Diluted                                12,245          13,299         14,449         14,910          10,894

                                              As of           As of          As of          As of           As of
                                          December 31,    December 31,   December 31,   December 31,    December 31,
                                              2006            2005           2004           2003            2002
                                          ------------    ------------   ------------   ------------    ------------
BALANCE SHEET DATA:
Working capital                             $ 20,541        $ 20,682       $ 17,853       $ 18,257        $ 16,662
Total assets                                $ 34,845        $ 35,976       $ 31,530       $ 26,270        $ 24,935
Debt                                              --        $  1,464       $  2,893             --              --
Stockholders' equity                        $ 25,529        $ 25,320       $ 21,902       $ 20,787        $ 19,121

(1) In December 2002,  the Board of Directors of the Company  approved a plan to
sell Caribbean Pacific Natural Products, Inc. ("CPNP"). On January 22, 2003, the
Board of Directors of the Company completed the sale of the Company's 60% equity
interest in CPNP to Suncoast  Naturals,  Inc.  The sale of this segment has been
treated  as  discontinued   operations  and  all  periods  presented  have  been
reclassified.


                                      -28-


ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATION

OVERVIEW

The  Company,   headquartered   in  Doylestown,   Pennsylvania,   is  a  leading
manufacturer, marketer and distributor of a diversified range of homeopathic and
health products which comprise the Cold Remedy, Health and Wellness and Contract
Manufacturing  segments.  The  Company  is also  involved  in the  research  and
development  of  potential  prescription  products  that  comprise  the  Ethical
Pharmaceutical segment.

The  Company's  business  is the  manufacture  and  distribution  of cold remedy
products to the consumer through the over-the-counter  marketplace together with
the sale of proprietary  health and wellness products through its direct selling
subsidiary.  One of the  Company's  key  products in its Cold Remedy  segment is
Cold-Eeze(R),  a zinc  gluconate  glycine  product  proven  in two  double-blind
clinical studies to reduce the duration and severity of the common cold symptoms
by nearly half.  Cold-Eeze(R)  is an established  product in the health care and
cold  remedy  market.   Effective   October  1,  2004,   the  Company   acquired
substantially all of the assets of JoEl, Inc., the previous  manufacturer of the
Cold-Eeze(R)  lozenge product.  This  manufacturing  entity,  now called Quigley
Manufacturing  Inc.  ("QMI"),  a wholly owned  subsidiary  of the Company,  will
continue to produce lozenge product along with performing such operational tasks
as warehousing and shipping the Company's  Cold-Eeze(R)  products.  In addition,
QMI, which is an FDA approved  facility,  produces a variety of hard and organic
candy for sale to third  party  customers  in addition  to  performing  contract
manufacturing activities for non-related entities.

The Cold-Eeze(R)  products reported a decline in sales in 2006 compared to 2005.
This  decline may be the result of less than  expected  incidences  of colds and
upper  respiratory  aliments  during 2006;  continued  shifts in our  customers'
buying  patterns  possibly  due  to  their  higher  inventory  levels,  and  the
introduction to the market of numerous branded Immume Booster products which may
have had the result of Cold-Eeze customers temporarily migrating to these brands
in an effort at  prevention  rather than  treating the cold.  During  2006,  the
margin of the Cold  Remedy  segment  was  favorably  impacted as a result of the
effects of Cold-Eeze(R) now being produced by the  manufacturing  subsidiary and
forming  part  of  the  consolidated  results  of  the  Company,  and  also  the
discontinuation of the Founders' royalty commission during 2005. However,  these
gains were offset by  substantially  lower gross profit  margins on the Contract
Manufacturing  segment's non cold remedy sales and  non-manufacturing  operating
costs of the  manufacturing  subsidiary  being  included  in current  operations
rather than being  carried as inventory  and cost of sales as was the case prior
to October 1, 2004.

The Health and Wellness  segment is operated through Darius  International  Inc.
("Darius"), a wholly owned subsidiary of the Company which was formed in January
2000  to  introduce  new  products  to the  marketplace  through  a  network  of
independent distributor representatives. Darius is a direct selling organization
specializing  in  proprietary  health and wellness  products.  The  formation of
Darius has provided diversification to the Company in both the method of product
distribution  and the broader  range of products  available to the  marketplace,
serving as a balance to the seasonal revenue cycles of the Cold-Eeze(R)  branded
products.  This segment reported a decline in sales during 2006 primarily due to
the reduction in the number of active  independent  distributor  representatives
and litigation  with the sponsor of the Company's  product line in this segment,
which  directly  affects  the  segment's  net  sales.   Corrective   action  was
implemented  during 2006 in regard to  expanding  international  markets and the
appointment of a new president of the segment.

In January 2001, the Company formed an Ethical Pharmaceutical  segment,  Quigley
Pharma  Inc.  ("Pharma"),  that is under the  direction  of its  Executive  Vice
President and Chairman of its Medical Advisory Committee.  Pharma was formed for
the  purpose of  developing  naturally  derived  prescription  drugs.  Pharma is
currently  undergoing  research  and  development  activity in  compliance  with
regulatory  requirements.  The Company is in the initial stages of what may be a
lengthy process to develop these patent  applications into commercial  products.
The  Company  continues  to  invest  significantly  with  ongoing  research  and
development  activities of this segment.  Of particular interest during 2006 was
the  announcement  in November 2006 by the Company that patient  enrollment in a
phase IIb multi center clinical study of QR-333 for the treatment of symptomatic
Diabetic Peripheral Neuropathy (DPN) had commenced.

Future revenues,  costs,  margins, and profits will continue to be influenced by
the Company's  ability to maintain its  manufacturing  availability and capacity
together with its marketing and  distribution  capabilities and the requirements
associated  with the  development of Pharma's  potential  prescription  drugs in
order to continue to compete on a national and international level. The business
development of Darius is dependent on the Company retaining existing independent
distributor  representatives  and recruiting  additional active  representatives
both  internationally  and within the United States,  continued  conformity with
government  regulations,  a reliable  information  technology  system capable of
supporting  continued  growth and  continued  reliable  sources  for product and
materials to satisfy consumer demand.


                                      -29-


EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board issued Interpretation No.
48,  ACCOUNTING  FOR  UNCERTAINTY IN INCOME TAXES (FIN 48). FIN 48 clarifies the
accounting  for  uncertainty  in  income  taxes  recognized  in an  enterprise's
financial  statements in accordance with SFAS Statement No. 109,  ACCOUNTING FOR
INCOME  TAXES.  FIN  48  prescribes  a  recognition  threshold  and  measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position  taken or expected to be taken in a tax  return.  FIN 48 also  provides
guidance on derecognition, classification, interest and penalties, accounting in
interim  periods,  disclosure and  transition.  FIN 48 will be effective for the
Company beginning January 1, 2007. The adoption of this standard is not expected
to have an impact on the Company's consolidated  financial position,  results of
operations or cash flows.

In September  2006,  the  Financial  Accounting  Standards  Board (FASB)  issued
Statement   of  Financial   Accounting   Standards   (SFAS)  157,   "Fair  Value
Measurements".  SFAS  157  defines  fair  value,  establishes  a  framework  for
measuring  fair value in generally  accepted  accounting  principles  (GAAP) and
expands  disclosures  about fair value  measurements.  SFAS 157 is effective for
fiscal years  beginning after November 15, 2007 and interim periods within those
fiscal years. The Company has not yet evaluated the effect SFAS 157 will have on
its financial statements and related disclosures.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of contingent  liabilities  at the dates of the financial  statements
and the reported amounts of revenues and expenses during the reporting  periods.
Actual results could differ from those estimates.

The Company is organized into four different but related business segments, Cold
Remedy, Health and Wellness,  Contract Manufacturing and Ethical Pharmaceutical.
When providing for the appropriate sales returns, allowances, cash discounts and
cooperative  incentive  promotion  costs,  each  segment  applies a uniform  and
consistent method for making certain assumptions for estimating these provisions
that are applicable to that specific  segment.  Traditionally,  these provisions
are  not  material  to net  income  in the  Health  and  Wellness  and  Contract
Manufacturing  segments.  The Ethical  Pharmaceutical  segment does not have any
revenues.

The product in the Cold Remedy segment, Cold-Eeze(R), has been clinically proven
in two  double-blind  studies to reduce the severity and duration of common cold
symptoms.  Accordingly,  factors  considered in estimating the appropriate sales
returns and allowances for this product  include it being: a unique product with
limited competitors;  competitively priced;  promoted;  unaffected for remaining
shelf life as there is no expiration  date;  monitored  for inventory  levels at
major customers and third-party consumption data, such as Information Resources,
Inc. ("IRI").

At  December  31,  2006 and 2005 the  Company  included  reductions  to accounts
receivable   for  sales  returns  and   allowances  of  $534,000  and  $635,000,
respectively,  and  cash  discounts  of  $154,000  and  $178,000,  respectively.
Additionally, current liabilities at December 31, 2006 and 2005 include $861,186
and $1,067,072, respectively for cooperative incentive promotion costs.

The  roll-forward of the sales returns and allowance  reserve ending at December
31 is as follows:

        Account - Sales Returns & Allowances                                        2006            2005
-----------------------------------------------------------------------------   -----------     -----------

Beginning balance                                                               $   634,580     $ 1,109,171
Provision made for future charges relative to sales for each period presented     1,061,640         678,127
Current provision related to discontinuation of Cold-Eeze(R) nasal spray            113,067         183,716
Actual returns & allowances recorded in the current period presented             (1,275,111)     (1,336,434)
                                                                                -----------     -----------
        Ending balance                                                          $   534,176     $   634,580
                                                                                ===========     ===========

The increase in the 2006 provision was principally due to non-routine returns of
obsolete product and product mix realignment by certain of our customers.  Also,
the Company  applies  specific  limits on product  returns from  customers,  and
evaluates return requests from customers relative to the Cold Remedy segment.

Management  believes there are no material  charges to net income in the current
period, related to sales from a prior period.


                                      -30-


REVENUE

Provisions to reserves to reduce  revenues for cold remedy  products that do not
have an  expiration  date,  include the use of  estimates,  which are applied or
matched to the current sales for the period presented. These estimates are based
on specific customer tracking and an overall historical  experience to obtain an
effective  applicable  rate,  which is tested on an  annual  basis and  reviewed
quarterly to ascertain the most  applicable  effective rate.  Additionally,  the
monitoring of current occurrences,  developments by customer,  market conditions
and any other occurrences that could affect the expected  provisions relative to
net sales for the period presented are also performed.

A one percent deviation for these consolidated  reserve provisions for the years
ended December 31, 2006,  2005 and 2004 would affect net sales by  approximately
$483,000,  $599,000 and  $481,000,  respectively.  A one percent  deviation  for
cooperative incentive promotions reserve provisions for the years ended December
31,  2006,  2005 and 2004  could  affect  net sales by  approximately  $298,000,
$352,000 and $275,000, respectively.

The reported  results  include a remaining  returns  provision of  approximately
$113,000 and  $184,000 at December 31, 2006 and December 31, 2005,  respectively
in the event of future  product  returns  following the  discontinuation  of the
Cold-Eeze(R) Cold Remedy Nasal Spray product in September 2004.

INCOME TAXES

The Company has  recorded a valuation  allowance  against its net  deferred  tax
assets.  Management  believes  that  this  allowance  is  required  due  to  the
uncertainty  of  realizing  these tax  benefits in the future.  The  uncertainty
arises because the Company may incur substantial  research and development costs
in its Ethical Pharmaceutical segment.

RESULTS OF OPERATIONS

TWELVE MONTHS ENDED DECEMBER 31, 2006 COMPARED WITH SAME PERIOD 2005

Net sales for 2006 were $42,124,969 compared to $53,658,043 for 2005, reflecting
a decrease of 21.5% in 2006.  Revenues,  by segment,  for 2006 were Cold Remedy,
$24,815,850,  Health and  Wellness,  $15,274,940;  and  Contract  Manufacturing,
$2,034,179,  as compared to 2005 when the revenues for each  respective  segment
were $29,284,651, $20,473,050 and $3,900,342.

The Cold  Remedy  segment  reported a sales  decrease in 2006 of  $4,468,801  or
15.3%. Sales in 2006 were negatively  impacted by higher than expected inventory
levels  being  carried by our  customers  resulting  in a shift in their  buying
patterns; lower than expected incidences of colds and upper respiratory ailments
which was  reflected in reduced unit  consumption  of the product as measured by
Information  Resources  Incorporated  (IRI)  of 8.5%  in the  twelve  months  to
December  2006.  The sales  performance  of Cold-Eeze in 2006 may also have been
influenced by the introduction of six nationally branded Immune Booster products
by competitors possibly causing temporary migration to these brands in search of
a product to help them avoid  catching  a cold as against  treating a cold.  The
Company is continuing to strongly support  Cold-Eeze as a clinically proven cold
remedy through in-store promotion, media advertising and the introduction of new
flavors.

The Health and Wellness  segment's net sales  decreased in 2006 by $5,198,110 or
25.4%.  This decrease  reflects a reduction in the number of active  independent
distributor  representatives  and  litigation  with the sponsor of the Company's
product line in this segment,  which  directly  affects the segment's net sales.
Corrective  action to remediate  this segment was  implemented  in 2006 with the
appointment  of a new  president for this segment  knowledgeable  in the network
marketing  business  along  with the  Company  investing  in and  expanding  its
Singapore and Taiwan markets.

The Contract  Manufacturing segment refers to the third party sales generated by
QMI.  In addition  to the  manufacture  of the  Cold-Eeze(R)  product,  QMI also
manufactures  a variety of hard and  organic  candies  under its own brand names
along with other products on a contract manufacturing basis for other customers.
Sales for this  segment  in 2006  decreased  by  $1,866,163  or  47.8%,  largely
attributable  to a customer's  discontinuation  of a significant  product during
2006 which was manufactured by QMI.

Cost of sales from  continuing  operations for 2006 as a percentage of net sales
was 45.7%, compared to 48.1% for 2005. The cost of sales percentage for the Cold
Remedy  segment  decreased  in 2006 by 0.6%  primarily  due to the impact of the
discontinuation of the Company's royalty obligations to the founders in May 2005
and variations in product sales mix. The cost of sales percentage for the Health
and  Wellness  segment  decreased  in  2006  by  3.0% due to reduced independent


                                      -31-


distributor  representatives  commission  costs,  reduced product cost with some
offset due to increased costs associated with international sales activity.  The
2006 and 2005  consolidated  cost of sales  were both  favorably  impacted  as a
result of the consolidation effects of the manufacturing  facility as it relates
to  Cold-Eeze(R).  These  gross  profit  gains of the Cold Remedy  segment  were
mitigated  by  substantially   lower  gross  profit  margins  for  the  Contract
Manufacturing  segment,  which is  significantly  lower than the other operating
segments.

Selling,  marketing  and  administrative  expenses  for  2006  were  $21,449,934
compared to  $21,070,307  in 2005.  The  increase in 2006 was  primarily  due to
decreased  sales  brokerage  commission  costs of $900,000 due to decreased 2006
sales;  increased  outside  advertising,  marketing  and  promotional  costs  of
$660,000,  payroll  costs  decreased by  $1,500,000,  mainly due to reduced 2006
bonuses;  legal costs  increased  by  $900,000,  insurance  costs  increased  by
$600,000,  2006 included $400,000 in costs related to the  international  direct
selling  business  with  no  comparable  2005  costs.  Selling,   marketing  and
administrative  expenses,  by  segment,  in 2006 were Cold  Remedy  $13,180,620,
Health and Wellness  $5,953,277,  Pharma  $743,465  and  Contract  Manufacturing
$1,572,572,  as  compared  to  2005 of  $13,519,967,  $5,249,296,  $724,394  and
$1,576,650, respectively.

Research and development costs for 2006 and 2005 were $3,820,071 and $3,784,221,
respectively.  Principally, the increase in research and development expenditure
was the result of increased Pharma study costs of approximately $246,000 in 2006
with offset due to decreased  cold-remedy  related product testing costs in 2006
compared to the prior year.

During 2006,  the  Company's  major  operating  expenses of salaries,  brokerage
commissions, promotion, advertising, and legal costs accounted for approximately
$16,086,896  (63.7%) of the total operating expenses of $25,270,005,  a decrease
of 4.9% over the 2005 amount of $16,922,587  (68.1%) of total operating expenses
of  $24,854,528,  largely the result of  decreased  sales  brokerage  commission
costs, increased legal costs and decreased payroll costs in 2006.

Total assets of the Company at December 31, 2006 and 2005 were  $34,845,034  and
$35,975,639,  respectively. Working capital decreased by $140,989 to $20,541,273
at December 31, 2006.  The primary  influences  on working  capital  during 2006
were: the increase in cash balances,  decreased account receivable  balances due
to reduced sales,  increased  inventory on hand as a result of sales  shortfall;
increased  accrued  royalties  and sales  commissions  as a result of litigation
between the Company and the developer of  Cold-Eeze(R),  the total  repayment of
the debt balance,  and decreased  advertising payable balances due to variations
in advertising scheduling between years and related seasonal factors.

TWELVE MONTHS ENDED DECEMBER 31, 2005 COMPARED WITH SAME PERIOD 2004

Net  sales  for 2005 were  $53,658,043  compared  to  $43,947,995  for 2004,  an
increase  of 22.1% in 2005.  Revenues,  by segment,  for 2005 were Cold  Remedy,
$29,284,651;  Health and  Wellness,  $20,473,050;  and  Contract  Manufacturing,
$3,900,342,  as compared to 2004 when the revenues for each  respective  segment
were $22,834,249, $20,361,391 and $752,355.

The Cold  Remedy  segment  reported a sales  increase in 2005 of  $6,450,402  or
28.2%.  During 2005 the Company  continued to strongly  support the Cold-Eeze(R)
product line through media and in-store  advertising and the introduction of new
Cold-Eeze(R)  flavors thereby increasing the profile of the product through line
extension.  Cold-Eeze(R)  product unit  consumption  increased by 27% in 2005 as
measured by Information Resources Incorporated (IRI) data.

The Health and  Wellness  segment's  net sales  increased in 2005 by $111,659 or
0.5%. International sales for this segment increased by 54.3% due to an increase
in the number of independent international  distributor  representatives in 2005
with  offset  due to a decline  in the  number of  active  domestic  independent
distributor representatives.

The Contract  Manufacturing  segment  related to third party sales  generated by
QMI.  In addition  to the  manufacture  of the  Cold-Eeze(R)  product,  QMI also
manufactures  a variety of hard and  organic  candies  under its own brand names
along with other products on a contract manufacturing basis for other customers.
Sales for this  segment  in 2005  increased  by  $3,147,987  as the 2004  period
consisted of three months activity.

Cost of sales from  continuing  operations for 2005 as a percentage of net sales
was 48.1%, compared to 53.6% for 2004. The cost of sales percentage for the Cold
Remedy  segment  decreased  in 2005 by 6.2%  primarily  due to the impact of the
discontinuation  of the nasal spray  product in 2004 and the  conclusion  of the
Company's  royalty  obligations  to the  founders  in May 2005.  The 2004  nasal
product discontinuation  negatively impacted net sales by approximately $680,000
and resulted in an additional expense to cost of sales of approximately $672,000
due to obsolete product and materials.  Remaining  variations  between the years
were  largely the result of product mix.  The cost of sales  percentage  for the
Health and Wellness  segment  increased in 2005 by 1.6% largely  attributable to
costs associated with increased  international  sales activity,  product mix and
variations in the independent distributor representative commission cost.


                                      -32-


The 2005  consolidated  cost of sales was favorably  impacted as a result of the
consolidation   effects  of  the   manufacturing   facility  as  it  relates  to
Cold-Eeze(R). These gross profit gains of the Cold Remedy segment were offset by
substantially lower gross profit margins for the Contract Manufacturing segment,
which is significantly lower than the other operating segments.

Selling,  marketing  and  administrative  expenses  for  2005  were  $21,070,307
compared to  $16,960,313  in 2004.  The  increase in 2005 was  primarily  due to
increased  sales  brokerage  commission  costs of $816,000 due to  significantly
improved sales performance;  the addition of Quigley Manufacturing Inc., for the
whole  of 2005  resulted  in  increased  selling  and  administration  costs  of
$1,276,459;  insurance costs increased by $435,920,  with the remaining increase
largely due to increased payroll costs.  Selling,  marketing and  administrative
expenses, by segment, in 2005 were Cold Remedy $13,519,967,  Health and Wellness
$5,249,296,  Pharma $724,394 and Contract Manufacturing  $1,576,650, as compared
to 2004 of $11,068,726, $5,098,834, $492,562 and $300,191, respectively.

Research and development costs for 2005 and 2004 were $3,784,221 and $3,232,569,
respectively.  Principally, the increase in research and development expenditure
was the result of decreased  cold-remedy  related  product testing costs in 2005
compared  to  the  prior  year,  offset  by  increased  Pharma  study  costs  of
approximately $756,000 in 2005.

During 2005,  the  Company's  major  operating  expenses of salaries,  brokerage
commissions, promotion, advertising, and legal costs accounted for approximately
$16,922,587 (68.1%) of the total operating expenses of $24,854,528,  an increase
of 31.2% over the 2004 amount of $12,900,314 (63.9%) of total operating expenses
of $20,192,882, largely the result of increased sales brokerage commission costs
and increased  payroll costs in 2005. The 2005 amounts  reflect the inclusion of
QMI for the twelve months of 2005 compared to three months in 2004.

Total assets of the Company at December 31, 2005 and 2004 were  $35,975,639  and
$31,529,756,   respectively.   Working   capital   increased  by  $2,829,352  to
$20,682,262  at December 31, 2005.  The primary  influences  on working  capital
during 2005 were: the increase in cash balances,  increased  account  receivable
balances  due to  increased  sales,  increased  inventory on hand as a result of
increased sales including  international  activity;  increased accrued royalties
and sales  commissions  as a result of  litigation  between  the Company and the
developer of  Cold-Eeze(R)  and increased  advertising  payable  balances due to
increased  advertising  activity in the latter part of 2005 and related seasonal
factors.

MATERIAL COMMITMENTS AND SIGNIFICANT AGREEMENTS

Effective  October 1, 2004,  the  Company  acquired  certain  assets and assumed
certain  liabilities of JoEl,  Inc., the sole  manufacturer of the  Cold-Eeze(R)
lozenge  product.  As part of the  acquisition,  the Company entered into a loan
obligation in the amount of $3.0 million  payable to PNC Bank, N.A. The loan was
collateralized  by  mortgages  on real  property  located  in  each of  Lebanon,
Pennsylvania  and  Elizabethtown,  Pennsylvania  and  was  used to  finance  the
majority of the cash  portion of the  purchase  price.  The Company  could elect
interest  rate options of either the Prime Rate or LIBOR plus 200 basis  points.
The loan was payable in eighty-four equal monthly principal  payments of $35,714
commencing  November 1, 2004,  and such amounts  payable  were  reflected in the
consolidated  balance sheet as current  portion of long-term  debt  amounting to
$428,571 and long term debt  amounting to $1,035,715  at December 31, 2005.  The
loan was completely repaid in 2006. During the duration of the loan, The Company
was in compliance with all related loan covenants.

With the exception of the Company's  Cold-Eeze(R) lozenge product, the Company's
products are  manufactured  by outside  sources.  The Company has  agreements in
place with these  manufacturers,  which ensure a reliable  source of product for
the future.

The Company has agreements in place with  independent  brokers whose function is
to  represent  the  Company's  Cold-Eeze(R)  products,  in a  product  sales and
promotion  capacity,  throughout  the  United  States and  internationally.  The
brokers are remunerated through a commission structure, based on a percentage of
sales collected, less certain deductions.

The Company has maintained a separate  representation and distribution agreement
relating to the development of the zinc gluconate  glycine product  formulation.
In return for exclusive  distribution rights, the Company must pay the developer
a 3% royalty and a 2%  consulting  fee based on sales  collected,  less  certain
deductions,  throughout  the term of this  agreement,  which is due to expire in
2007.  However,  the Company and the developer are in litigation and as such, no
potential  offset  for these  fees from such  litigation  has been  recorded.  A
founder's  commission totaling 5%, on sales collected,  less certain deductions,
has been paid to two of the officers of the Company,  who are also directors and
stockholders  of the  Company,  and whose  agreements  expired in May 2005.  The
expenses for the  respective  periods  relating to such  agreements  amounted to
$1,153,354,  $1,745,748,  and  $2,052,746  for the twelve  months  periods ended
December  31,  2006,  2005 and 2004,  respectively.  Amounts  accrued  for these
expenses  at  December  31,  2006  and  2005  were  $3,230,765  and  $2,077,411,
respectively.


                                      -33-


The Company has an agreement  with the former  owners of the  Utah-based  direct
marketing and selling company, whereby they receive payments, currently totaling
5% of net sales collected, for exclusivity, consulting, marketing presentations,
confidentiality  and  non-compete  arrangements.  Amounts  expensed  under  such
agreement  during 2006,  2005 and 2004 were  $630,723,  $838,607,  and $800,881,
respectively. Amounts payable under such agreement at December 31, 2006 and 2005
were $528,990 and $58,597, respectively.

Certain  operating  leases for  office and  warehouse  space  maintained  by the
Company resulted in rent expense for the years ended December 31, 2006, 2005 and
2004, of $336,914,  $227,701,  and $335,226,  respectively.  The future  minimum
lease obligations under these operating leases are approximately $543,000.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working  capital of $20,541,273  and $20,682,262 at December 31,
2006 and 2005,  respectively.  Changes  in  working  capital  overall  have been
primarily  due to the  following  items:  cash  balances  increased by $871,589;
account receivable balances, net, decreased by $1,322,793 due to decreased sales
and effective collection practices;  inventory increased by $362,040 as a result
of  decreased  sales and  seasonal  factors,  accrued  advertising  decreased by
$710,155 due to variations  in media  advertising  scheduling  between years and
seasonal factors;  accrued royalties and sales commissions increased by $451,048
largely  due to the effects of certain  litigation  in  progress.  Total debt at
December  31,  2005 in the  amount of  $1,464,286,  of which  $428,571  had been
classified as current at December 31, 2005, was repaid in full during 2006. This
item relates to the loan  liability  following  the  acquisition  of JoEl,  Inc.
effective  October 1, 2004 while the assets  acquired are presented in property,
plant and equipment.  Total cash balances at December 31, 2006 were  $17,756,759
compared to $16,885,170 at December 31, 2005.

Management believes that its strategy to establish  Cold-Eeze(R) as a recognized
brand name, its broader range of products, its diversified  distribution methods
as  it  relates  to  the  Health  and  Wellness   business   segment,   adequate
manufacturing  capacity,  and growth in international  sales,  together with its
current  working  capital,  should provide an internal source of capital to fund
the  Company's  business  operations.  The Cold  Remedy and Health and  Wellness
segments  contribute  current  expenditure  support in  relation  to the Ethical
Pharmaceutical segment. In addition to anticipated funding from operations,  the
Company  and its  subsidiaries  may in the  short and long  term  raise  capital
through the issuance of equity securities to finance  anticipated  growth and to
fund future research and development costs of Pharma compounds.

Management is not aware of any trends,  events or uncertainties that have or are
reasonably  likely to have a material  negative  impact upon the  Company's  (a)
short-term or long-term  liquidity,  or (b) net sales or income from  continuing
operations.  Any challenge to the Company's  patent rights could have a material
adverse effect on future liquidity of the Company;  however,  the Company is not
aware of any condition that would make such an event probable.

Management believes that cash generated from operations,  along with its current
cash  balances,  will be  sufficient  to finance  working  capital  and  capital
expenditure requirements for at least the next twelve months.

CONTRACTUAL OBLIGATIONS

The Company's  future  contractual  obligations  and commitments at December 31,
2006 consist of the following:

                                                              Payment Due by Period
                                                              ---------------------
                                               Less than         1-3           4-5        More than
Contractual Obligations             Total        1 year         years         years        5 years
-----------------------------    ----------    ----------    ----------    ----------    ----------
Operating Lease Obligations      $  551,376    $  248,296    $  303,080            --            --
Purchase Obligations                     --            --            --            --            --
Research and Development          3,220,672     3,220,672            --            --            --
Advertising                       1,815,154     1,815,154            --            --            --
                                 ----------    ----------    ----------    ----------    ----------
Total Contractual Obligations    $5,587,202    $5,284,122    $  303,080            --            --
                                 ==========    ==========    ==========    ==========    ==========


                                      -34-


OFF-BALANCE SHEET ARRANGEMENTS

It is not the Company's usual business  practice to enter into off-balance sheet
arrangements such as guarantees on loans and financial  commitments and retained
interests in assets  transferred to an unconsolidated  entity for securitization
purposes.  Consequently,  the Company has no off-balance sheet arrangements that
have, or are reasonably  likely to have, a material  current or future effect on
its financial condition,  changes in financial condition,  revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.

IMPACT OF INFLATION

The Company is subject to normal  inflationary  trends and anticipates  that any
increased costs would be passed on to its customers.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's  operations are not subject to risks of material  foreign currency
fluctuations, nor does it use derivative financial instruments in its investment
practices.  The Company  places its marketable  investments in instruments  that
meet high credit quality standards.  The Company does not expect material losses
with respect to its investment  portfolio or exposure to market risks associated
with interest rates. The impact on the Company's results of one percentage point
change in  short-term  interest  rates  would not have a material  impact on the
Company's future  earnings,  fair value, or cash flows related to investments in
cash equivalents or interest-earning marketable securities.


                                      -35-


ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                      PAGE
                                                                                                ----

Balance Sheets as of December 31, 2006 and 2005                                                 F-1

Statements of Operations for the years ended December 31, 2006, 2005, and 2004                  F-2

Statements of Stockholders' Equity for the years ended December 31, 2006,  2005, and 2004       F-3

Statements of Cash Flows for the years ended December 31, 2006, 2005,  and 2004                 F-4

Notes to Financial Statements                                                                   F-5 to F-27

Responsibility for Financial Statements                                                         F-28

Report of Independent Registered Public Accounting Firm Amper, Politziner & Mattia, P.C.        F-29


                                      -36-


                             THE QUIGLEY CORPORATION
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                                                                    December 31, 2006   December 31, 2005
                                                                                    -----------------   -----------------

CURRENT ASSETS:

          Cash and cash equivalents                                                    $ 17,756,759       $ 16,885,170
          Accounts receivable (net of doubtful accounts of $275,636 and $354,972)         6,557,347          7,880,140
          Inventory                                                                       4,262,104          3,900,064
          Prepaid expenses and other current assets                                       1,217,097          1,582,851
                                                                                       ------------       ------------
              TOTAL CURRENT ASSETS                                                       29,793,307         30,248,225
                                                                                       ------------       ------------

PROPERTY, PLANT AND EQUIPMENT - NET                                                       4,838,076          5,585,793
                                                                                       ------------       ------------

OTHER ASSETS                                                                                213,651            141,621
                                                                                       ------------       ------------

TOTAL ASSETS                                                                           $ 34,845,034       $ 35,975,639
                                                                                       ============       ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
          Current portion of long-term debt                                            $         --       $    428,571
          Accounts payable                                                                  885,648            771,819
          Accrued royalties and sales commissions                                         3,752,646          3,301,598
          Accrued advertising                                                             2,150,259          2,860,414
          Other current liabilities                                                       2,463,481          2,203,561
                                                                                       ------------       ------------
               TOTAL CURRENT LIABILITIES                                                  9,252,034          9,565,963
                                                                                       ------------       ------------

LONG-TERM DEBT                                                                                   --          1,035,715

MINORITY INTEREST                                                                            63,563             54,314

STOCKHOLDERS' EQUITY:

          Common stock, $.0005 par value; authorized 50,000,000;
            Issued: 17,330,686 and 16,360,524 shares                                          8,665              8,180
          Additional paid-in-capital                                                     37,362,453         35,404,803
          Retained earnings                                                              13,346,478         15,094,823
          Less: Treasury stock, 4,646,053 and 4,646,053 shares, at cost
                                                                                        (25,188,159)       (25,188,159)
                                                                                       ------------       ------------
               TOTAL STOCKHOLDERS' EQUITY                                                25,529,437         25,319,647
                                                                                       ------------       ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                             $ 34,845,034       $ 35,975,639
                                                                                       ============       ============

           See accompanying notes to consolidated financial statements


                                       F-1


                             THE QUIGLEY CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                  Year Ended         Year Ended         Year Ended
                                              December 31, 2006  December 31, 2005  December 31, 2004
                                              -----------------  -----------------  -----------------

NET SALES                                        $ 42,124,969       $ 53,658,043       $ 43,947,995

COST OF SALES                                      19,246,604         25,824,085         23,573,126
                                                 ------------       ------------       ------------

GROSS PROFIT                                       22,878,365         27,833,958         20,374,869
                                                 ------------       ------------       ------------

OPERATING EXPENSES:
      Sales and marketing                           8,326,197          8,414,065          7,140,365
      Administration                               13,123,737         12,656,242          9,819,948
      Research and development                      3,820,071          3,784,221          3,232,569
                                                 ------------       ------------       ------------
TOTAL OPERATING EXPENSES                           25,270,005         24,854,528         20,192,882
                                                 ------------       ------------       ------------

(LOSS) INCOME  FROM OPERATIONS                     (2,391,640)         2,979,430            181,987
                                                 ------------       ------------       ------------

OTHER INCOME  (EXPENSE)
      Interest income                                 753,538            402,580            104,339
      Interest expense                                (21,644)          (100,326)           (32,250)
      Gain on dividend-in-kind                             --                 --            198,786
                                                 ------------       ------------       ------------
TOTAL OTHER INCOME, NET                               731,894            302,254            270,875
                                                 ------------       ------------       ------------

(LOSS) INCOME  BEFORE TAXES                        (1,659,746)         3,281,684            452,862
                                                 ------------       ------------       ------------

INCOME TAXES                                           88,599             65,000                 --
                                                 ------------       ------------       ------------

NET (LOSS) INCOME                               ($  1,748,345)      $  3,216,684       $    452,862
                                                 ============       ============       ============

(LOSS) EARNINGS  PER COMMON SHARE:

      Basic                                     ($       0.14)      $       0.28       $       0.04
                                                 ============       ============       ============

      Diluted                                   ($       0.14)      $       0.24       $       0.03
                                                 ============       ============       ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
      Basic                                        12,245,073         11,660,561         11,541,012
                                                 ============       ============       ============

      Diluted                                      12,245,073         13,299,162         14,449,334
                                                 ============       ============       ============

           See accompanying notes to consolidated financial statements


                                       F-2


                             THE QUIGLEY CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                        Common                      Additional
                                         Stock         Issued        Paid-in-         Treasury        Retained
                                        Shares         Amount        Capital           Stock          Earnings            Total
                                     ---------------------------------------------------------------------------------------------

BALANCE DECEMBER 31, 2003             11,503,026    $     8,074      $34,281,449    ($25,188,159)    $11,685,277       $20,786,641
                                     ---------------------------------------------------------------------------------------------

Tax benefits from options,
  warrants & common stock                                                 67,675                                            67,675

Tax benefit allowance                                                    (67,675)
                                                                                                                           (67,675)
Shares issued for net asset
  acquisition, net of registration
  fees                                   113,097             58          895,392                                           895,450

Proceeds from options exercised           23,620             11           26,975                                            26,986

Dividend-in-kind                                                                                        (260,000)         (260,000)

Net Income                                                                                               452,862           452,862
                                     ---------------------------------------------------------------------------------------------

BALANCE DECEMBER 31, 2004             11,639,743          8,143       35,203,816     (25,188,159)     11,878,139        21,901,939
                                     ---------------------------------------------------------------------------------------------

Tax benefits from options,
  warrants & common stock                                                249,453                                           249,453

Tax benefit allowance                                                   (249,453)
                                                                                                                          (249,453)
Proceeds from options and
  warrants exercised                      74,728             37          200,987                                           201,024

Net Income                                                                                             3,216,684         3,216,684
                                     ---------------------------------------------------------------------------------------------

BALANCE DECEMBER 31, 2005             11,714,471          8,180       35,404,803     (25,188,159)     15,094,823        25,319,647
                                     ---------------------------------------------------------------------------------------------

Tax benefits from options,
  warrants & common stock                                              2,484,330                                         2,484,330

Tax benefit allowance                                                 (2,484,330)                                       (2,484,330)

Proceeds from options exercised        1,011,155            505        1,957,630                                         1,958,135

Stock Cancellation                       (40,993)           (20)              20                                                --

Net Loss                                                                                              (1,748,345)       (1,748,345)
                                     ---------------------------------------------------------------------------------------------

BALANCE DECEMBER 31, 2006             12,684,633    $     8,665      $37,362,453    ($25,188,159)    $13,346,478       $25,529,437
                                     ---------------------------------------------------------------------------------------------

           See accompanying notes to consolidated financial statements


                                       F-3


                             THE QUIGLEY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                             Year Ended         Year Ended         Year Ended
                                                         December 31, 2006  December 31, 2005  December 31, 2004
                                                         -----------------  -----------------  -----------------
OPERATING ACTIVITIES:
Net (loss) income                                           ($ 1,748,345)      $  3,216,684       $    452,862
                                                            ------------       ------------       ------------
ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET CASH
  PROVIDED BY CONTINUING OPERATIONS:
  Depreciation and amortization                                1,326,920          1,404,107            622,348
  Gain on dividend-in-kind                                            --                 --           (198,786)
  Gain on the sales of fixed assets                                   --             (3,907)                --
  Bad debts provision                                             26,358             98,751             25,289

  (INCREASE) DECREASE IN ASSETS:
       Accounts receivable                                     1,296,435         (1,602,912)         1,460,615
       Inventory                                                (362,040)          (445,382)         1,198,221
       Prepaid expenses and other current assets                 365,754           (896,552)            47,298
       Other assets                                              (69,282)             3,748            (33,611)
  INCREASE (DECREASE) IN LIABILITIES:
       Accounts payable                                          113,829           (206,582)           454,265
       Accrued royalties and sales commissions                   451,048          1,505,517            201,624
       Accrued advertising                                      (710,155)           941,403            564,475
       Other current liabilities                                 266,421            250,614           (134,573)
                                                            ------------       ------------       ------------
                 TOTAL ADJUSTMENTS                             2,705,288          1,048,805          4,207,165
                                                            ------------       ------------       ------------

NET CASH PROVIDED BY  OPERATING
  ACTIVITIES                                                     956,943          4,265,489          4,660,027
                                                            ------------       ------------       ------------

INVESTING ACTIVITIES:
  Capital expenditures                                          (697,479)          (531,213)          (310,139)
  Cost of assets acquired, net of registration fees                   --                 --         (4,295,380)
  Proceeds from the sale of fixed assets                         118,276             12,000                 --
                                                            ------------       ------------       ------------

NET CASH FLOWS USED IN INVESTING
  ACTIVITIES                                                    (579,203)          (519,213)        (4,605,519)
                                                            ------------       ------------       ------------

FINANCING ACTIVITIES:
  Proceeds from long-term borrowings                                  --                 --          3,000,000
  Principal payments on debt                                  (1,464,286)        (1,428,571)          (107,142)
  Stock options and warrants exercised                         1,958,135            201,024             26,986
                                                            ------------       ------------       ------------
NET CASH FLOWS PROVIDED BY (USED IN)
  FINANCING ACTIVITIES                                           493,849         (1,227,547)         2,919,844
                                                            ------------       ------------       ------------

NET INCREASE IN CASH                                             871,589          2,518,729          2,974,352

CASH & CASH EQUIVALENTS, BEGINNING OF
  PERIOD                                                      16,885,170         14,366,441         11,392,089
                                                            ------------       ------------       ------------

CASH & CASH EQUIVALENTS,
  END OF PERIOD                                             $ 17,756,759       $ 16,885,170       $ 14,366,441
                                                            ============       ============       ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
   INFORMATION:

     CASH PAID FOR:
        Interest                                            $     21,644       $    100,326       $     32,250
        Taxes                                               $     88,599       $     65,000       $         --
     NON-CASH INVESTING AND FINANCING:
        Common stock issued for net assets acquired         $         --       $         --       $    977,158

           See accompanying notes to consolidated financial statements


                                       F-4


                             THE QUIGLEY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS

The  Company,   headquartered   in  Doylestown,   Pennsylvania,   is  a  leading
manufacturer, marketer and distributor of a diversified range of homeopathic and
health products which comprise the Cold Remedy, Health and Wellness and Contract
Manufacturing  segments.  The  Company  is also  involved  in the  research  and
development  of  potential  prescription  products  that  comprise  the  Ethical
Pharmaceutical segment.

The  Company's  business  is the  manufacture  and  distribution  of cold remedy
products to the consumer through the over-the-counter  marketplace together with
the sale of proprietary  health and wellness products through its direct selling
subsidiary.  One of the  Company's  key  products in its Cold Remedy  segment is
Cold-Eeze(R),  a zinc  gluconate  glycine  product  proven  in two  double-blind
clinical studies to reduce the duration and severity of the common cold symptoms
by nearly half.  Cold-Eeze(R)  is now an established  product in the health care
and cold  remedy  market.  Effective  October  1,  2004,  the  Company  acquired
substantially all of the assets of JoEl, Inc., the previous  manufacturer of the
Cold-Eeze(R)  lozenge product.  This  manufacturing  entity,  now called Quigley
Manufacturing  Inc.  ("QMI"),  a wholly owned  subsidiary  of the Company,  will
continue to produce lozenge product along with performing such operational tasks
as warehousing and shipping the Company's  Cold-Eeze(R)  products.  In addition,
QMI  produces  a  variety  of hard and  organic  candy  for sale to third  party
customers  in addition  to  performing  contract  manufacturing  activities  for
non-related entities.

Darius International Inc. ("Darius"),  the Health and Wellness segment, a wholly
owned  subsidiary  of the Company,  was formed in January 2000 to introduce  new
products  to the  marketplace  through  a  network  of  independent  distributor
representatives.  Darius  is  a  direct  selling  organization  specializing  in
proprietary health and wellness  products.  The formation of Darius has provided
diversification  to the Company in both the method of product  distribution  and
the broader range of products available to the marketplace, serving as a balance
to the seasonal revenue cycles of the Cold-Eeze(R) branded products.

In January 2001, the Company formed an Ethical Pharmaceutical  segment,  Quigley
Pharma  Inc.  ("Pharma"),  that is under the  direction  of its  Executive  Vice
President and Chairman of its Medical Advisory Committee.  Pharma was formed for
the purpose of developing naturally derived prescription drugs,  cosmeceuticals,
and dietary supplements. Pharma is currently undergoing research and development
activity  in  compliance  with  regulatory  requirements.  The Company is in the
initial  stages  of what  may be a  lengthy  process  to  develop  these  patent
applications into commercial products.

Future revenues,  costs,  margins, and profits will continue to be influenced by
the Company's  ability to maintain its  manufacturing  availability and capacity
together with its marketing and  distribution  capabilities and the requirements
associated  with the  development of Pharma's  potential  prescription  drugs in
order to  continue  to  compete  on a  national  and  international  level.  The
continued  expansion of Darius is dependent  on the Company  retaining  existing
independent   distributor   representatives  and  recruiting  additional  active
representatives  both  internationally  and within the United States,  continued
conformity with government regulations, a reliable information technology system
capable of  supporting  continued  growth and  continued  reliable  sources  for
product and materials to satisfy consumer demand.

The business of the Company is subject to federal and state laws and regulations
adopted  for  the  health  and  safety  of  users  of  the  Company's  products.
Cold-Eeze(R)  is a homeopathic  remedy that is subject to regulations by various
federal,  state  and  local  agencies,  including  the FDA  and the  Homeopathic
Pharmacopoeia of the United States.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Consolidated  Financial  Statements  include the accounts of the Company and
its wholly owned subsidiaries.  All inter-company transactions and balances have
been  eliminated.  Effective  March 31, 2004, the financial  statements  include
consolidated  variable  interest  entities  ("VIEs") of which the Company is the
primary  beneficiary  (see  discussion in Note 4, "Variable  Interest  Entity").
Certain  prior period  amounts have been  reclassified  to conform with the 2006
presentation.


                                       F-5


USE OF ESTIMATES

The Company's  consolidated financial statements are prepared in accordance with
generally accepted accounting  principles (GAAP) in the United Sates of America.
In connection with the preparation of the consolidated financial statements, the
Company is required to make  assumptions and estimates about future events,  and
apply  judgments  that  affect the  reported  amounts  of  assets,  liabilities,
revenue,  expenses and related  disclosures.  These  assumptions,  estimates and
judgments are based on historical  experience,  current trends and other factors
that management  believes to be relevant at the time the consolidated  financial
statements   are  prepared.   Management   reviews  the   accounting   policies,
assumptions,  estimates  and  judgments  on a  quarterly  basis  to  ensure  the
financial  statements are presented fairly and in accordance with GAAP. However,
because  future events and their effects  cannot be determined  with  certainty,
actual  results  could differ from these  assumptions  and  estimates,  and such
differences could be material.

The Company is organized  into four  different  but related  business  segments,
Cold-Remedy,   Health  and   Wellness,   Contract   Manufacturing   and  Ethical
Pharmaceutical.  When providing for the appropriate  sales returns,  allowances,
cash discounts and cooperative  incentive  program costs, each segment applies a
uniform and  consistent  method for making  certain  assumptions  for estimating
these  provisions that are applicable to each specific  segment.  Traditionally,
these  provisions  are not  material  to  reported  revenues  in the  Health and
Wellness and  Contract  Manufacturing  segments  and the Ethical  Pharmaceutical
segment does not have any revenues.

Provisions to these reserves  within the Cold Remedy segment  include the use of
such estimates, which are applied or matched to the current sales for the period
presented.  These  estimates  are based on  specific  customer  tracking  and an
overall historical  experience to obtain an applicable effective rate. Estimates
for sales returns are tracked at the specific  customer  level and are tested on
an annual  historical  basis,  and  reviewed  quarterly,  as is the estimate for
cooperative  incentive promotion costs. Cash discounts follow the terms of sales
and are taken by  virtually  all  customers.  Additionally,  the  monitoring  of
current occurrences,  developments by customer,  market conditions and any other
occurrences that could affect the expected  provisions for any future returns or
allowances, cash discounts and cooperative incentive promotion costs relative to
net sales for the period presented are also performed.

CASH EQUIVALENTS

The Company considers all highly liquid  investments with an initial maturity of
three  months  or less at the  time of  purchase  to be cash  equivalents.  Cash
equivalents  include cash on hand and monies invested in money market funds. The
carrying  amount  approximates  the  fair  market  value  due to the  short-term
maturity of these investments.

INVENTORIES

Inventory is valued at the lower of cost,  determined  on a first-in,  first-out
basis (FIFO), or market.  Inventory items are analyzed to determine cost and the
market  value  and  appropriate   valuation   reserves  are   established.   The
consolidated  financial  statements  include a reserve  for  excess or  obsolete
inventory   of  $430,926  and  $369,508  as  of  December  31,  2006  and  2005,
respectively.  Inventories included raw material, work in progress and packaging
amounts of  approximately  $1,077,000  and  $1,340,000  at December 31, 2006 and
December 31, 2005, respectively, with the remainder comprising finished goods.

PROPERTY, PLANT AND EQUIPMENT

Property,  plant  and  equipment  are  recorded  at  cost.  The  Company  uses a
combination of straight-line and accelerated  methods in computing  depreciation
for financial reporting purposes. The annual provision for depreciation has been
computed in  accordance  with the  following  ranges of  estimated  asset lives:
building and improvements - twenty to thirty nine years; machinery and equipment
- five to seven  years;  computer  software - three  years;  and  furniture  and
fixtures - seven years.

CONCENTRATION OF RISKS

Financial  instruments  that  potentially  subject  the  Company to  significant
concentrations of credit risk consist  principally of cash investments and trade
accounts receivable.

The Company  maintains cash and cash  equivalents  with several major  financial
institutions.  Since the  Company  maintains  amounts  in  excess of  guarantees
provided by the Federal Depository Insurance  Corporation,  the Company performs
periodic  evaluations  of  the  relative  credit  standing  of  these  financial
institutions and limits the amount of credit exposure with any one institution.


                                       F-6


Trade accounts receivable  potentially  subjects the Company to credit risk. The
Company  extends  credit  to its  customers  based  upon  an  evaluation  of the
customer's financial condition and credit history and generally does not require
collateral.   The  Company's  broad  range  of  customers  includes  many  large
wholesalers,  mass merchandisers and multi-outlet pharmacy chains, five of which
account for a significant  percentage of sales volume,  representing 31% for the
year ended  December 31, 2006, 29% for the year ended December 31, 2005, and 27%
for the year ended  December 31,  2004.  Customers  comprising  the five largest
accounts receivable  balances  represented 56% and 47% of total trade receivable
balances at December  31, 2006 and 2005,  respectively.  During  2006,  2005 and
2004, approximately 9%, 8%, and 7%, respectively, of the Company's revenues were
related to international markets.

The Company's revenues are currently  generated from the sale of the Cold-Remedy
products  which  approximated  59%, 55% and 52% of total  revenues in the twelve
month periods ended December 31, 2006, 2005 and 2004,  respectively.  The Health
and Wellness segment approximated 36%, 38% and 46%, for the twelve month periods
ended December 31, 2006, 2005 and 2004, respectively. The Contract Manufacturing
segment  approximated  5%, 7% and 2% for the twelve month periods ended December
31, 2006, 2005 and 2004, respectively.

Raw materials used in the production of the products are available from numerous
sources.  Raw  materials  for the  Cold-Eeze(R)  lozenge  product are  currently
procured  from a single  vendor in order to secure  purchasing  economies.  In a
situation where this one vendor is not able to supply QMI with the  ingredients,
other sources have been  identified.  Should these product sources  terminate or
discontinue  for any reason,  the Company has  formulated a contingency  plan in
order to prevent such  discontinuance  from  materially  affecting the Company's
operations.  Any such termination may,  however,  result in a temporary delay in
production  until  the  replacement  facility  is  able to  meet  the  Company's
production requirements.

Darius' products for resale can be sourced from several suppliers.  In the event
that such sources were no longer in a position to supply  Darius with  products,
other vendors have been identified as reliable alternatives with minimal adverse
loss of business.

LONG-LIVED ASSETS

The Company  reviews its long-lived  assets for impairment on an exception basis
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable  through future undiscounted cash flows. If it
is determined  that an impairment  loss has occurred  based on the expected cash
flows  compared  to the  related  asset  value,  an  impairment  loss  would  be
recognized in the Statement of Operations.

REVENUE RECOGNITION

Sales are recognized at the time ownership is transferred to the customer, which
for the Cold Remedy segment is the time the shipment is received by the customer
and for both the Health and  Wellness  segment  and the  Contract  Manufacturing
segment,  when the  product is shipped to the  customer.  Revenue is reduced for
trade promotions,  estimated sales returns,  cash discounts and other allowances
in the same  period  as the  related  sales  are  recorded.  The  Company  makes
estimates of potential  future product returns and other  allowances  related to
current period revenue. The Company analyzes historical returns, current trends,
and changes in customer and consumer  demand when evaluating the adequacy of the
sales  returns  and other  allowances.  The  consolidated  financial  statements
include  reserves of $534,176  for future  sales  returns and $429,546 for other
allowances  as of December  31, 2006 and  $634,580  and $533,250 at December 31,
2005,  respectively.  The 2006 and 2005  reserve  balances  include a  remaining
returns  provision at December  31, 2006 and December 31, 2005 of  approximately
$113,000 and  $184,000,  respectively,  in the event of future  product  returns
following  the  discontinuation  of the  Cold-Eeze(R)  Cold  Remedy  Nasal Spray
product  in  September  2004.  The  reserves  also  include an  estimate  of the
uncollectability  of accounts  receivable  resulting in a reserve of $275,636 at
December 31, 2006 and $354,972 at December 31, 2005.

COST OF SALES

For the Cold  Remedy  Segment,  in  accordance  with  contract  terms,  payments
calculated  based upon net sales collected to the patent holder of the Cold-Eeze
formulation and payments to the corporation founders and developers of the final
saleable   Cold-Eeze(R)   product   amounting  to  $1,153,354,   $1,745,748  and
$2,052,746,  respectively,  at December 31, 2006, 2005 and 2004 are presented in
the financial statements as cost of sales.


                                       F-7


In the Health and Wellness  Segment,  agreements  with  Independent  Distributor
Representatives  ("IR's")  require  payments to them to be calculated based upon
net  commissionable  sales of other  IR's in their  down-line  and not on any of
their  individual  purchases  of  products  including  not  taking  title to the
products  that are sold by other  IR's.  In  accordance  with  EITF  01-9,  such
payments to the IR's do not qualify as a reduction of the selling price as these
payments are not offered as an  allowance  or as a  percentage  rebate of direct
purchases  made,  and  the  IR's  are  not  offered  any  cooperative  incentive
promotions  of any type.  Such  payments,  among other  factors,  are related to
expand the cycle of additional IR's and for maintaining the distribution channel
for this segment's products.

Accordingly, such distribution payments amounting to $6,433,602,  $9,207,613 and
$9,053,612,  respectively,  at December 31, 2006, 2005 and 2004 are presented in
the financial statements as cost of sales.

OPERATING EXPENSES

Agreements  relating  to the Cold Remedy  segment  with a major  national  sales
brokerage firm are for this firm to sell the manufactured  Cold-Eeze  product to
our customers.  Such related costs are presented in the financial  statements as
selling expenses.

In the Health and Wellness Segment,  the Company includes payments in accordance
with agreements with the former owner of its acquired proprietary  products,  to
be  calculated  based upon net sales  collected.  These  agreements  provide for
exclusivity,   consulting,   marketing   presentations,    confidentiality   and
non-compete  arrangements  with such payments being classified as administration
expense.

SHIPPING AND HANDLING

Product  sales  relating to Health and  Wellness  products  carry an  additional
identifiable shipping and handling charge to the purchaser,  which is classified
as revenue. For the Cold Remedy and Contract Manufacturing  segments, such costs
are included as part of the invoiced  price.  In all cases costs related to this
revenue are recorded in cost of sales.

STOCK COMPENSATION

Stock options and warrants for purchase of the Company's  common stock have been
granted to both  employees and  non-employees  since the date the Company became
publicly traded. Options and warrants are exercisable during a period determined
by the Company, but in no event later than ten years from the date granted.

Expense  relating to options  granted to  non-employees  has been  appropriately
recorded in the periods  presented  based on fair  values as  determined  by the
Black-Scholes  pricing model  dependent upon the  circumstances  relating to the
specific grants.

The Company used the Black-Scholes  pricing model to determine the fair value of
stock  options  granted  during the 2005 and 2004  periods  presented  using the
following  assumptions:  expected  life of the  option of 5 years  and  expected
forfeiture  rate of 0%;  expected  stock price  volatility of 58.3% for the year
ended December 31, 2005,  expected stock price  volatility of 49.8% for the year
ended December 31, 2004,  expected  dividend yield of 0% and risk-free  interest
rate of 4.46% for the year ended December 31, 2005;  expected  dividend yield of
0% and risk-free interest rate of 3.3% for the year ended December 31, 2004. The
impact of applying SFAS No. 123R in this pro forma  disclosure is not indicative
of the impact on future  years'  reported  net income as SFAS No.  123R does not
apply to stock  options  granted  prior to the beginning of fiscal year 2006 and
additional stock options awards may be granted in future years. All options were
immediately  vested upon grant.  No options or warrants were granted  during the
year ended December 31, 2006.

Prior to  January 1, 2006,  the  Company  applied  Accounting  Principles  Board
Opinion No. 25 ("APB 25") in accounting  for its grants of options to employees.
Under the intrinsic value method  prescribed by APB 25, no compensation  expense
relating  to grants to  employees  has been  recorded  by the Company in periods
reported.  If  compensation  expense  for awards  made  during  the years  ended
December  31, 2005 and 2004 had been  determined  under the fair value method of
Statement of Financial  Accounting  Standards  (SFAS) No. 123,  "Accounting  for
Stock-Based Compensation," the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:


                                       F-8


                                                            Year Ended          Year Ended
                                                           December 31,        December 31,
                                                               2005                2004
                                                          -------------       -------------
      Net income
         As reported                                      $   3,216,684       $     452,862

      Add: Stock-based compensation expense included
      in reported net income as determined under the
      intrinsic value method                                         --                  --

      Deduct: Adjustment to stock-based employee
      compensation expense as determined under the
      fair value based method                                (3,884,400)         (2,230,000)

                                                         ----------------------------------
         Pro forma net loss                               ($    667,716)     ($   1,777,138)
                                                         ----------------------------------

      Basic earnings (loss) per share
         As reported                                              $0.28               $0.04
         Pro forma                                               ($0.06)             ($0.15)
      Diluted earnings (loss) per share
         As reported                                              $0.24               $0.03
         Pro forma                                               ($0.05)             ($0.15)

Expense  relating to warrants granted to  non-employees  has been  appropriately
recorded in the periods  presented  based on fair  values as  determined  by the
Black Scholes  pricing model  dependent upon the  circumstances  relating to the
specific grants.

A total of zero,  520,000,  and 500,000  stock options were granted to employees
and non-employees in 2006, 2005 and 2004, respectively.

ADVERTISING AND INCENTIVE PROMOTIONS

Advertising  and  incentive  promotion  costs are expensed  within the period in
which  they  are  utilized.  Advertising  and  incentive  promotion  expense  is
comprised  of  media  advertising,  presented  as part of  sales  and  marketing
expense;  co-operative  incentive promotions,  which is accounted for as part of
net sales;  and free  product,  which is accounted for as part of cost of sales.
Advertising and incentive  promotion costs incurred for the years ended December
31,  2006,  2005  and  2004  were   $7,703,426,   $8,688,233,   and  $6,584,600,
respectively. Included in prepaid expenses and other current assets was $258,215
and $96,050 at December 31, 2006 and 2005  relating to prepaid  advertising  and
promotion expenses.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations in the period incurred.
Expenditures  for the  years  ended  December  31,  2006,  2005  and  2004  were
$3,820,071, $3,784,221 and $3,232,569,  respectively.  Principally, research and
development  costs are related to Pharma's study activities and costs associated
with Cold-Eeze(R).

INCOME TAXES

The  Company  utilizes  the asset and  liability  approach  which  requires  the
recognition  of  deferred  tax  assets  and   liabilities  for  the  future  tax
consequences  of events that have been  recognized  in the  Company's  financial
statements or tax returns.  In estimating future tax  consequences,  the Company
generally  considers all expected future events other than enactments of changes
in the tax law or rates. Until sufficient taxable income to offset the temporary
timing   differences   attributable   to  operations   and  the  tax  deductions
attributable to option,  warrant and stock  activities are assured,  a valuation
allowance equaling the total deferred tax asset is being provided. See Note 13 -
Income Taxes for further discussion.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash  and  cash  equivalents,  accounts  receivable  and  accounts  payable  are
reflected  in the  consolidated  financial  statements  at carrying  value which
approximates fair value because of the short-term maturity of these instruments.
The fair value of past periods'  long-term debt was approximately  equivalent to
its carrying value due to the fact that the interest rates then available to the
Company for debt with  similar  terms were  approximately  equal to the interest
rates for the Company's debt.  Determination  of the fair value of related party
payables is not practicable due to their related party nature.


                                       F-9


RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2006, the Financial Accounting Standards Board issued Interpretation No.
48,  ACCOUNTING  FOR  UNCERTAINTY IN INCOME TAXES (FIN 48). FIN 48 clarifies the
accounting  for  uncertainty  in  income  taxes  recognized  in an  enterprise's
financial  statements in accordance with SFAS Statement No. 109,  ACCOUNTING FOR
INCOME  TAXES.  FIN  48  prescribes  a  recognition  threshold  and  measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position  taken or expected to be taken in a tax  return.  FIN 48 also  provides
guidance on derecognition, classification, interest and penalties, accounting in
interim  periods,  disclosure and  transition.  FIN 48 will be effective for the
Company beginning January 1, 2007. The adoption of this standard is not expected
to have an impact on the Company's consolidated  financial position,  results of
operations or cash flows.

In September  2006,  the  Financial  Accounting  Standards  Board (FASB)  issued
Statement   of  Financial   Accounting   Standards   (SFAS)  157,   "Fair  Value
Measurements".  SFAS  157  defines  fair  value,  establishes  a  framework  for
measuring  fair value in generally  accepted  accounting  principles  (GAAP) and
expands  disclosures  about fair value  measurements.  SFAS 157 is effective for
fiscal years  beginning after November 15, 2007 and interim periods within those
fiscal years. The Company has not yet evaluated the effect SFAS 157 will have on
its financial statements and related disclosures.

NOTE 3 - ACQUISITIONS

On October 1, 2004, the Company acquired certain assets of JoEL, Inc,  including
inventory,  land,  buildings,  machinery  and  equipment  of  two  manufacturing
facilities  located in Lebanon  and  Elizabethtown,  Pennsylvania,  and  assumed
certain liabilities.  The acquisition cost was approximately $5.2 million, which
consisted of $1.2 million in cash, transaction costs of $113,671, a $3.0 million
term loan (see Note 7) and the issuance of 113,097  common shares of The Quigley
Corporation in the amount of $895,449, net of registration fees of $81,709.

The fair  value of these  long-lived  assets  were as of  October  1,  2004,  as
determined by accredited independent third parties.

The fair value of the common stock issued of $8.64 per share was  determined  by
averaging  the closing price for four business days before and after the closing
date of October 1, 2004,  resulting in a value to the shares  issued of $977,158
less registration costs of $81,709.

The fair value of assets  acquired  and  liabilities  assumed at October 1, 2004
follow:

                                          Allocated        Unallocated
                                         Excess Fair       Excess Fair
                                            Value             Value
                                         -----------       -----------

      Inventory                          $   900,000       $   900,000
      Land                                   386,588           528,000
      Buildings and improvements             982,578         1,342,000
      Machinery and equipment              2,933,089         4,006,000
      Furniture and fittings                  58,574            80,000
                                         -----------       -----------
                                           5,260,829         6,856,000

      Liabilities assumed                    (70,000)          (70,000)
                                         -----------       -----------
      Excess of net fair value over
      purchase price                              --        (1,595,171)
                                         -----------       -----------

                                         $ 5,190,829       $ 5,190,829
                                         ===========       ===========

The sum of the assets acquired and liabilities  assumed exceeded the cost of the
acquired assets (excess fair value over cost). This excess is allocated as a pro
rata reduction of the amounts that otherwise  would have been assigned to all of
the long-lived acquired assets.

The  acquisition  was  executed  in  order to  ensure  that  the  integrity  and
formulation  of the  Cold-Eeze(R)  products  remained  under the  control of the
Company  and  the  assurance  of a  continued  supply  of  Cold-Eeze(R)  to  the
marketplace. This is an FDA approved facility with available capacity for future
product development and manufacture.


                                      F-10


PRO FORMA RESULTS.  The following  unaudited pro forma information  presents the
results of operations of the Company as if the JoEl  acquisition had occurred at
the beginning of the periods shown. The pro forma information,  however,  is not
necessarily   indicative  of  the  results  of  operations   assuming  the  JoEl
acquisition  had occurred at the beginning of the periods  presented,  nor is it
necessarily indicative of future results.

                                                              Year Ended
                                                             December 31,
                                                                 2004
                                                             ------------
                                                              (Unaudited)

      AS REPORTED
          Total Revenue                                      $ 43,947,995
          Income from continuing operations                       452,862
          Income from continuing operations - basic
             earnings per common share                       $       0.04

      PRO FORMA
          Total Revenue                                      $ 45,784,627
          (Loss)/income from continuing operations                (88,368)
          (Loss)/income from continuing operations -
             basic (loss)/earnings per common share         ($       0.01)

NOTE 4 - VARIABLE INTEREST ENTITY

In December 2003, the Financial Accounting Standards Board (FASB or the "Board")
issued FASB  Interpretation  No. 46 (revised  December 2003),  CONSOLIDATION  OF
VARIABLE INTEREST ENTITIES (FIN 46R), to address certain  implementation issues.
FIN 46R varies  significantly from FASB Interpretation No. 46,  CONSOLIDATION OF
VARIABLE INTERESTENTITIES("VIE") (FIN 46), which it supersedes. FIN 46R requires
the application of either FIN 46 or FIN 46R by "Public  Entities" to all Special
Purpose  Entities  ("SPEs") at the end of the first interim or annual  reporting
period  ending after  December 15, 2003.  FIN 46R is  applicable to all non-SPEs
created prior to February 1, 2003 by Public Entities that are not small business
issuers at the end of the first interim or annual  reporting period ending after
March 15, 2004.  Effective March 31, 2004, the Company adopted FIN 46R for VIE's
formed prior to February 1, 2003. The Company has determined that Scandasystems,
a related  party,  qualifies as a variable  interest  entity and the Company has
consolidated  Scandasystems beginning with the quarter ended March 31, 2004. Due
to the  fact  that the  Company  has no  long-term  contractual  commitments  or
guarantees,  the  maximum  exposure  to loss is  insignificant.  As a result  of
consolidating  the VIE of which the  Company  is the  primary  beneficiary,  the
Company  recognized a minority interest of approximately  $63,563 and $54,314 on
the Consolidated  Balance Sheet in 2006 and 2005 which represents the difference
between the assets and the liabilities  recorded upon the  consolidation  of the
VIE.

The liabilities recognized as a result of consolidating the VIE do not represent
additional claims on the Company's general assets. Rather, they represent claims
against  the  specific  assets  of  the  consolidated  VIE.  Conversely,  assets
recognized as a result of  consolidating  this VIE do not  represent  additional
assets  that could be used to  satisfy  claims  against  the  Company's  general
assets.  Reflected on the Company's  Consolidated  Balance Sheet are $64,592 and
$61,844 in 2006 and 2005 of VIE  assets,  representing  all of the assets of the
VIE.  The VIE  assists  the  Company in  acquiring  licenses  and  research  and
development activities in certain countries.

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

Consisted of the following as of:

                                            December 31, 2006  December 31, 2005
                                            -----------------  -----------------

      Land                                     $  538,791         $  538,791
      Buildings and improvements                2,562,052          2,496,536
      Machinery and equipment                   4,951,049          4,935,636
      Computer software                           528,332            520,787
      Furniture and fixtures                      283,583            260,277
                                               ----------         ----------
                                                8,863,807          8,752,027
      Less: Accumulated  depreciation           4,025,731          3,166,234
                                               ----------         ----------
      Property, Plant and Equipment, net       $4,838,076         $5,585,793
                                               ==========         ==========


                                      F-11


Depreciation  expense for the years ended  December 31, 2006,  2005 and 2004 was
$1,326,920,  $1,404,107,  and  $622,348,  respectively.  During  the year  ended
December  31,  2006,  the Company  retired  equipment  with an original  cost of
approximately $585,699 and accumulated depreciation of approximately $467,423.

NOTE 6 - PATENT RIGHTS AND RELATED ROYALTY COMMITMENTS

The Company has maintained a separate  representation and distribution agreement
relating to the development of the zinc gluconate  glycine product  formulation.
In return for exclusive  distribution rights, the Company must pay the developer
a 3% royalty and a 2%  consulting  fee based on sales  collected,  less  certain
deductions,  throughout  the term of this  agreement,  which is due to expire in
2007. However,  the Company and the developer are in litigation (see Note 9) and
as such no  potential  offset  for  these  fees from  such  litigation  has been
recorded. A founder's  commission totaling 5%, on sales collected,  less certain
deductions,  has been paid to two of the  officers,  who are also  directors and
stockholders  of the Company,  and whose  agreements  expired in 2005, (see Note
15).

The expenses for the respective periods relating to such agreements  amounted to
$1,153,354,  $1,745,748 and  $2,052,746,  for the years ended December 31, 2006,
2005 and 2004, respectively.  Amounts accrued for these expenses at December 31,
2006 and 2005 were  $3,230,765  and  $2,077,411,  respectively,  all non related
party balances..

Amounts  included  in accrued  royalties  and sales  commissions  in the balance
sheets at December 31, 2006 and 2005, are all non related party balances.

NOTE 7 - LONG-TERM DEBT

In connection with the Company's  acquisition of certain assets of JoEl, Inc. in
October 2004,  the Company  entered into a term loan in the amount of $3 million
payable to PNC Bank, N.A. which was collateralized by mortgages on real property
located in each of Lebanon and  Elizabethtown,  Pennsylvania.  The Company could
elect  interest  rate  options  at either the Prime Rate or LIBOR plus 200 basis
points.  The loan was payable in eighty-four equal monthly principal payments of
$35,714 that commenced on November 1, 2004. In April 2005,  the Company  prepaid
an amount of $1.0 million against the outstanding balance on the long-term loan.
In  April  2006,  the  Company   prepaid  the  total   outstanding   balance  of
approximately $1.3 million.

NOTE 8 - OTHER CURRENT LIABILITIES

Included in other  current  liabilities  are $234,208  and  $923,411  related to
accrued compensation at December 31, 2006 and 2005, respectively.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Certain  operating  leases for  office and  warehouse  space  maintained  by the
Company resulted in rent expense for the years ended December 31, 2006, 2005 and
2004,  of  $336,914,  $227,701,  and  $335,226,  respectively.  The  Company has
approximate future obligations over the next five years as follows:

                   Research and        Property and
      Year          Development        Other Leases        Advertising            Other           Total
      ----------------------------------------------------------------------------------------------------
      2007           $3,220,672          $248,296           $1,815,154               --         $5,284,122
      2008                   --           194,592                   --               --            194,592
      2009                   --           108,488                   --               --            108,488
      2010                   --                --                   --               --                 --
      2011                   --                --                   --               --                 --
      ----------------------------------------------------------------------------------------------------
      Total          $3,220,672          $551,376           $1,815,154               --         $5,587,202
      ----------------------------------------------------------------------------------------------------

Additional  advertising  and research and  development  costs are expected to be
incurred during the remainder of 2007.

The Company has an  agreement  with the former  owners of the Utah based  direct
marketing and selling company, whereby they receive payments, currently totaling
5% of net  sales  collected,  for  product  exclusivity,  consulting,  marketing
presentations,  confidentiality  and non-compete  arrangements.  Amounts paid or
payable under such agreement during the twelve months periods ended December 31,
2006, 2005 and 2004 were $630,723, $838,607 and $800,881, respectively.  Amounts
payable  under such  agreement  at December  31, 2006 and December 31, 2005 were
$528,990 and $58,597, respectively.


                                      F-12


The Company has several licensing and other contractual agreements, see Note 6.

              TESAURO AND ELEY, ET AL. VS. THE QUIGLEY CORPORATION
                  (CCP OF PHILA., AUGUST TERM 2000, NO. 001011)

In September,  2000, the Company was sued by two individuals  (Jason Tesauro and
Elizabeth Eley, both residents of Georgia), allegedly on behalf of a "nationwide
class" of  "similarly  situated  individuals,"  in the Court of Common  Pleas of
Philadelphia  County,  Pennsylvania.  The  Complaint  further  alleges  that the
plaintiffs  purchased  certain  Cold-Eeze  products  between  August,  1996, and
November, 1999, based upon cable television,  radio and internet advertisements,
which  allegedly  misrepresented  the  qualities  and benefits of the  Company's
products. The Complaint, as pleaded originally,  requested an unspecified amount
of damages for violations of Pennsylvania's  consumer  protection law, breach of
implied warranty of merchantability and unjust enrichment, as well as a judicial
determination that the action be maintained as a class action. In October, 2000,
the Company filed  Preliminary  Objections to the Complaint seeking dismissal of
the  action.   The  court  sustained  certain   objections,   thereby  narrowing
plaintiffs' claims.

In May 2001,  plaintiffs  filed a motion to  certify  the  putative  class.  The
Company  opposed  the motion.  In  November,  2001,  the court held a hearing on
plaintiffs' motion for class certification.  In January,  2002, the court denied
in part and granted in part  plaintiffs'  motion.  The court denied  plaintiffs'
motion to  certify a class  based on  plaintiffs'  claims  under  Pennsylvania's
consumer   protection  law,  under  which  plaintiffs   sought  treble  damages,
effectively  dismissing  this cause of action;  however,  the court  certified a
class  based on  plaintiffs'  secondary  breach of implied  warranty  and unjust
enrichment claims. In August, 2002, the court issued an order adopting a form of
Notice of Class Action to be published  nationally.  The form of Notice approved
by the court included a provision  which limits the potential  class members who
may  potentially  recover  damages in this action to those persons who present a
proof of purchase of Cold-Eeze during the period August 1996 and November 1999.

Afterward,  a series of pre-trial  motions were filed raising issues  concerning
trial  evidence  and the court's  jurisdiction  over the  subject  matter of the
action. In March, 2005, the court held oral argument on these motions.

On  November  8, 2006,  the Court  entered an Order  dismissing  the case in its
entirety  on the basis  that the  action  was  preempted  by  federal  law.  The
plaintiffs  appealed  the Court's  decision in  December,  2006.  Presently,  no
scheduling order has been entered by the appellate court,  which presumably will
hear argument later this year.

For the reasons stated by the Court in dismissing the case, as well as for other
reasons,  the Company  believes  that  plaintiffs'  case on appeal  lacks merit;
however, no prediction as to the outcome of the appeal can be made.

               THE QUIGLEY CORPORATION VS. JOHN C. GODFREY, ET AL
                          (BUCKS CO. CCP, NO. 04-07776)

In this action,  which was  commenced in November  2004,  the Company is seeking
declaratory and injunctive  relief against John C. Godfrey,  Nancy Jane Godfrey,
and Godfrey Science and Design, Inc. requesting  injunctive relief regarding the
Cold-Eeze trade name and trademark;  injunctive relief relating to the Cold-Eeze
formulations and manufacturing methods; injunctive relief for breach of the duty
of  loyalty,   and  declaratory   judgment  pending  the  Company's  payment  of
commissions  to  defendants.  The Company's  Complaint is based in part upon the
Exclusive Representation and Distribution Agreement and the Consulting Agreement
(together the "Agreements") entered into between the defendants and the Company.
The Company  terminated  the  Agreements for the  defendants'  alleged  material
breaches of the Agreements.  Defendants have answered the complaint and asserted
counterclaims  against the Company seeking remedies  relative to the Agreements.
The Company believes that the defendants' counterclaims are without merit and is
vigorously  defending those  counterclaims  and is prosecuting its action on its
complaint.  The deposition phase of pre-trial discovery is about to commence. At
this time no prediction as to the outcome of this action can be made.

          DARIUS INTERNATIONAL INC., ET AL. VS. ROBERT O. YOUNG ET AL.
                 (FEDERAL DISTRICT COURT - EASTERN DISTRICT, PA)

In this action, the Company seeks injunctive relief and monetary damages against
two individuals for violation of a  non-competition  agreement  between a wholly
owned subsidiary of the Company,  Innerlight,  Inc., and the defendants, each of
whom are also under agreement to serve as consulting to the Company.


                                      F-13


In late November,  2005, the Company  learned that the defendants had launched a
line of nutritional  supplement products that competed with Innerlight products.
Defendants promoted their line of products by a website,  among other means. The
Company moved for a temporary  restraining  order against the defendants,  which
the court denied; however, the court ordered expedited discovery and scheduled a
preliminary  injunction  hearing.  Before the hearing,  the Company  amended its
complaint to add counts  against  defendants for unfair  competition,  trademark
infringement and other causes, which the court allowed. In response,  defendants
initially  moved to dismiss the case.  The court  denied the motion.  Defendants
answered the  complaint and asserted nine  counterclaims,  including:  breach of
contract;  breach of covenant of good faith and fair dealing; unjust enrichment;
conversion; common law trademark infringement; common law violation of the right
to publicity;  violation of abuse of personal identity act;  injunctive  relief;
and declaratory relief.

After the preliminary  injunction  hearing,  held in January,  2006, the parties
briefed the court on the significance of the hearing evidence in relation to the
parties'  respective  claims. On February 17, 2006, the court held oral argument
on the motion for preliminary injunction.

On April  20,  2006,  the  Court  entered  an Order  enjoining  defendants  from
competing  against the  Company.  Thereafter,  the parties  engaged in pre-trial
discovery.

A trial on the merits of the case was held  before  the  Court,  without a jury,
during  November  2006.  Following  the  presentation  of evidence,  the Company
renewed its claim for a permanent  injunction and monetary  damages  against the
defendants. Based upon the evidence presented at trial, the Company believes the
counterclaim actions are without merit.

The  Court  has not  entered  its  ruling  at this  point,  and at this  time no
prediction as to the outcome can be made.

          BRIGITTE YVON & KLAUS YVON VS. THE QUIGLEY CORPORATION, ET AL

On October 12, 2005,  the  Plaintiffs  instituted  an action  against  Caribbean
Pacific Natural  Products,  Inc. and other defendants for personal injuries as a
result of being hit by a chair on the pool deck of Waikoloa Beach Marriott Hotel
d/b/a Outrigger Enterprises,  Inc. in Honolulu, Hawaii. On December 9, 2005, The
Quigley Corporation was added as an additional  defendant without notice to this
case. The main defendant in the case is Caribbean Pacific Natural Products, Inc.
in which The Quigley  Corporation  formerly held stock.  On January 22, 2003 all
shares of The Quigley Corporation stock were sold to Suncoast Naturals,  Inc. in
return for stock of Suncoast  Naturals,  Inc. At the time of the  accident,  The
Quigley  Corporation  had no  ownership  interest in Caribbean  Pacific  Natural
Products, Inc.

The Corporation  believes that the  plaintiffs'  claims are without merit and is
vigorously  defending  this  action.  At the  present  time this matter is being
defended by the Company's liability insurance carrier and a motion to dismiss is
pending  before  the  Federal  District  in  Honolulu,  Hawaii.

At this time no prediction as to the outcome can be made.


                                      F-14


                 NICODROPS, INC. VS. QUIGLEY MANUFACTURING, INC.

On January 30, 2006, Quigley Manufacturing,  Inc., a wholly-owned  subsidiary of
The  Quigley  Corporation,  was put on  notice  of a claim  by  Nicodrops,  Inc.
Nicodrops,  Inc. has claimed that the packaging contained  incorrect  expiration
dates and caused it to lose sales through two (2)  retailers.  The total alleged
sales  of  Nicodrops  was  approximately  $250,000  and  Nicodrops  is  claiming
unspecified damages exceeding $2,000,000.

No suit has been filed.  The Company is investigating  this claim.  Based on its
investigation to date, the Company believes the claim is without merit. However,
at this time no prediction can be made as to the outcome of this case.

     THE QUIGLEY CORPORATION VS. WACHOVIA INSURANCE SERVICES, INC. AND FIRST
                     UNION INSURANCE SERVICES AGENCY, INC.

The Quigley Corporation  instituted a Writ of Summons against Wachovia Insurance
Services,  Inc. and First Union Insurance  Services Agency,  Inc. on December 8,
2005. The purpose of this suit was to maintain an action and toll the statute of
limitation  against The  Quigley  Corporation's  insurance  broker who failed to
place excess  limits  coverage for the Company for the period from  November 29,
2003  until  April 6,  2004.  As a result of the  defendant's  failure  to place
insurance and to notify Quigley of its actions,  certain pending actions covered
by  Quigley's  underlying  insurance  at the present time many result in certain
cases presently being defended by insurance counsel and the underlying insurance
carrier  to cause an  exhaustion  of the  underlying  insurance  for the  policy
periods  ending  November 29, 2004 and  November 29, 2005.  Any case in which an
alleged action arose by the use of Cold-Eeze  Nasal Spray from November 29, 2003
to April 6, 2004 is not covered by excess insurance.

The Company's claim against Wachovia  Insurance  Services,  Inc. and First Union
Insurance  Services Agency,  Inc. is for negligence and for equitable  insurance
for these  claims in the event  that  Quigley's  underlying  policy  limits  are
exhausted.  As of the date of this letter there is no  exhaustion  of underlying
coverage and the action  against  Wachovia  Insurance  Services,  Inc. and First
Union Insurance  Services  Agency,  Inc. cannot be prosecuted until such time as
actual damages can be measured.  At this time no prediction as to the outcome of
the cases covered by insurance  can be made and no prediction  can be made as to
the outcome of any action against Wachovia  Insurance  Services,  Inc. and First
Union Insurance Services Agency, Inc.

     MONIQUE FONTENOT DOYLE VS. THE QUIGLEY CORPORATION (U.S.D.C., W.D. LA.
                             DOCKET NO.: 6:06CV1497)

On August 31, 2006,  the  plaintiff  filed an action  against the Company in the
United   States   District   Court  for  the  Western   District  of   Louisiana
(Lafayette-Opelousas  Division).  The  action  alleges  the  plaintiff  suffered
certain  losses and injuries as a result of the Company's  nasal spray  product.
Among the allegations of plaintiff are breach of express  warranties and damages
pursuant to the Louisiana products liability act.

A trial date has been set for January 7, 2008.  Discovery  is not yet  complete.
The Company believes the plaintiff's  claims are without merit and is vigorously
defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.


                                      F-15


           ZANG ANGELFIRE, TRACEY ARVIN, RAYMOND BELL, JEFFREY BROWN,
              SHANE HOHNSTEIN, TAMMY LAURENT, KRISTI MARTIN, LARRY
            RICHARDSON, LARRY RIGSBY, BARBARA SEOANE, DONNA SMALLEY,
             MARJORIE VAN BENTHEM AND JOHN WILLIAMS VS. THE QUIGLEY
                                   CORPORATION
             (PA. C.C.P., BUCKS COUNTY, DOCKET NO.: 2004-07364-27-2)

On November 4, 2004, seven (7) plaintiffs filed an action in the Court of Common
Pleas of Bucks  County,  Pennsylvania,  against the Company.  The  complaint was
amended  on March 11,  2005 to add an  additional  eight (8)  plaintiffs  in the
action. Subsequently, two plaintiffs dismissed their suit, leaving thirteen (13)
plaintiffs remaining.  The action alleges the plaintiffs suffered certain losses
and  injuries  as a result of using  the  Company's  nasal  spray  product.  The
plaintiffs  claim  the  Company  is  liable  to  them  based  on  the  following
allegations:   negligence,  strict  products  liability  (failure  to  warn  and
defective design), breach of express warranty,  breach of implied warrant, and a
violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law
and other consumer protection statutes.

A trial date has been set for September 24, 2007. Discovery is not yet complete.
The Company is  vigorously  defending  this lawsuit and believes that the action
lacks merit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.

       HOWARD POLSKI AND SHERYL POLSKI VS. THE QUIGLEY CORPORATION, ET AL.
                (U.S.D.C., D. MINN. DOCKET NO.: 04-4199 PJS/JJG)

On August  12,  2004,  plaintiffs  filed an action  against  the  Company in the
District  Court for  Hennepin  County,  Minnesota,  which was not  served  until
September 2, 2004.  On September 17, 2004,  the Company  removed the case to the
United States  District Court for the District of Minnesota.  The action alleges
that  plaintiffs  suffered  certain  losses  and  injuries  as a  result  of the
Company's  nasal  spray  product.   Among  the  allegations  of  plaintiffs  are
negligence,  products liability,  breach of express and implied warranties,  and
breach of the Minnesota Consumer Fraud Statute.

The Company believes the plaintiffs'  claims are without merit and is vigorously
defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.

            DOMINIC DOMINIJANNI, SONJA FORSBERG-WILLIAMS, VINT PAYNE,
         MURRAY LOU ROGERS, AND RANDY STOVER VS. THE QUIGLEY CORPORATION
               (PA. C.C.P., BUCKS COUNTY, DOCKET NO.: 060013427-1;
                CONSOLIDATED UNDER DOCKET NO.: 2004-07364-27-2)

On January 6, 2006,  five (5) plaintiffs  filed an action in the Court of Common
Pleas of Bucks County, Pennsylvania, against the Company. The action alleges the
plaintiffs  suffered  certain  losses  and  injuries  as a result  of using  the
Company's  nasal  spray  product.  The  complaint  was served on the  Company on
January 31,  2006.  Plaintiffs'  complaint  consists  of counts for  negligence,
strict  products  liability   (failure  to  warn),   strict  products  liability
(defective  design),  breach of express and implied  warranties,  and violations
under the  Pennsylvania  Unfair Trade Practices and Consumer  Protection Law and
other consumer protection statutes.

Discovery is not yet complete.  The Company believes the plaintiffs'  claims are
without merit and is vigorously defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.

            GREG SCRAGG VS. THE QUIGLEY CORPORATION, ET AL. (U.S.D.C,
                     D. COLO. DOCKET NO.: 06- 00061 LTB-CBS)

On November  30, 2005,  an action was brought in the  District  Court of Denver,
Colorado.  The complaint was served on the Company soon  thereafter.  The action


                                      F-16


alleges the plaintiff  suffered certain losses and injuries as a result of using
the Company's  nasal spray product.  The complaint  consists of counts for fraud
and  deceit  (fraudulent  concealment),   negligent  misrepresentation,   strict
liability (failure to warn), and strict product liability (design defect).

A trial date has been set for August 27, 2007.  Discovery  is not yet  complete.
The Company believes the plaintiff's  claims are without merit and is vigorously
defending this lawsuit.

At the  present  time  this  matter is being  defended  by the  Company  and the
Company's  liability  insurance carrier.  Based upon the information the Company
has at this time, it believes the action will not have a material  impact to the
Company. However, at this time no prediction as to the outcome can be made.

                   BONNIE L. HURD. VS. THE QUIGLEY CORPORATION
              (PA. C.C.P., BUCKS COUNTY, DOCKET NO.: 06-10055-13-2)

On October 31, 2006,  plaintiff  filed an action in the Court of Common Pleas of
Bucks  County,  Pennsylvania.  The  complaint  was  served on the  Company  soon
thereafter.  The  action  alleges  the  plaintiff  suffered  certain  losses and
injuries as a result of using the  Company's  nasal spray  product.  Plaintiff's
complaint consists of counts for negligence,  strict products liability (failure
to warn), strict products liability  (defective  design),  breach of express and
implied warranties, and violations under the Pennsylvania Unfair Trade Practices
and Consumer Protection Law and other consumer protection statutes.

Discovery is not yet complete.  The Company believes the plaintiff's  claims are
without merit and is vigorously defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.

  CAROLYN HENRY BAYNHAM VS. THE QUIGLEY CORPORATION, ET AL. (U.S.D.C, E.D. TEX.
                             DOCKET NO.: 1:07CV0010)

On January  8, 2007,  plaintiff  filed an action in the United  States  District
Court for the Eastern  District of  Texas-Beaumont  Division.  The complaint was
served on the  Company on January 15,  2007.  The action  alleges the  plaintiff
suffered  certain  losses and injuries as a result of using the Company's  nasal
spray product.  Plaintiff's complaint consists of counts for negligence,  strict
products  liability  (failure to warn),  strict  products  liability  (defective
design), and breach of express and implied warranties.

Discovery is not yet complete.  The Company believes the plaintiff's  claims are
without merit and is vigorously defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.

          CAROLYN SUNDERMEIER VS. THE QUIGLEY CORPORATION (PA. C.C.P.,
                    BUCKS COUNTY, DOCKET NO.: 07-01324-26-2)

On February 16, 2007,  plaintiff filed an action in the Court of Common Pleas of
Bucks County, Pennsylvania.  The complaint was served on the Company on February
20, 2007. The action alleges the plaintiff  suffered certain losses and injuries
as a result of using the Company's  nasal spray product.  Plaintiff's  complaint
consists of counts for negligence,  strict products liability (failure to warn),
strict  products  liability  (defective  design),  breach of express and implied
warranties,  and violations  under the  Pennsylvania  Unfair Trade Practices and
Consumer Protection Law and other consumer protection statutes.

Discovery is not yet complete.  The Company believes the plaintiff's  claims are
without merit and is vigorously defending this lawsuit.

At the present  time this matter is being  defended by the  Company's  liability
insurance  carrier.  Based upon the information the Company has at this time, it
believes the action will not have a material impact to the Company.  However, at
this time no prediction as to the outcome can be made.


                                      F-17


            ROBERT O. AND SHELLEY YOUNG VS. DARIUS INTERNATIONAL INC.
               AND INNERLIGHT INC., (UTAH THIRD PARTY COMPLAINTS)

On September 14, 2005, a third-party  complaint was filed by Shelley R. Young in
Fourth  District  Court in Provo,  Utah against  Innerlight  Inc. and its parent
company,  Darius.  Robert O. Young has filed a motion to  intervene to join as a
third-party  plaintiff with Shelley R. Young.  On November 3, 2005,  Shelley and
Robert Young filed a parallel suit also in Fourth District Court in Provo, Utah.
The allegations in both complaints  include,  but are not limited to, an alleged
breach of contract by  Innerlight  Inc.  for  alleged  failures to make  certain
payments  under  an  asset  purchase  agreement  entered  into  by all  parties.
Additional  allegations  stem from this  alleged  breach of  contract  including
unjust  enrichment,  trademark  infringement and alleged  violation of rights of
publicity.  The  plaintiffs  are seeking both  monetary and  injunctive  relief.
Innerlight Inc. has objected to the complaint in the third-party action based on
procedural deficiencies and other grounds.

The Fourth  District  Court of Utah has stayed both the  September  14, 2005 and
November 3, 2005 actions pending the  adjudication of the Federal District Court
action  referenced  above and has ordered that all disputes be determined in the
Federal District Court action in the Eastern District of Pennsylvania.

In  connection  with the Utah  actions the Company has sued the Youngs in United
States District Court for the Eastern District of Pennsylvania.  The Company has
alleged   breach  of   contract,   including   but  not  limited  to  breach  of
non-competition  provisions in a consulting agreement between the parties and is
seeking unspecified damages and injunctive relief.

                    INNERLIGHT INC. VS. THE MATRIX GROUP, LLC

          (FOURTH JUDICIAL DISTRICT COURT, UTAH COUNTY, STATE OF UTAH)

On March 13, 2006  Innerlight  Inc. filed a declaratory  judgment  action in the
Fourth Judicial District,  Utah County, State of Utah,  requesting a declaration
that there is no valid contract  between the parties.  The Matrix Group, LLC has
alleged there is a contract  between the parties  obligating  Innerlight Inc. to
purchase  $750,000 of products for the 12-month  period  commencing  October 18,
2004 and ending October 17, 2005,  $1,500,000 for the period commencing  October
18, 2005 and ending October 17, 2006, and for each 12-month  period  thereafter,
through and including October 17, 2013, at least $4,000,000 of products from The
Matrix Group, LLC. The document on which Matrix relies was drafted by Matrix and
states that the acceptance of the appointment by distributor  (Innerlight  Inc.)
is conditioned upon  distributor's  written  acceptance of the Company's product
price list.  No written  acceptance  of the product  price list was ever made by
Innerlight Inc.

The  Matrix  Group,  LLC filed a Utah Rule of Civil  Procedure  12(b)(3)  motion
asking  that the  complaint  be  dismissed.  On July 13,  2006 the Court for the
Fourth Judicial District,  Utah County,  State of Utah, entered an order denying
defendant's  motion  to  dismiss  under  Rule  12(b)(3)  based  on  Innerlight's
assertion  that a  material  condition  precedent  remains  to be  satisfied  to
establish an enforceable  agreement  between the parties.  The Utah County Court
has maintained  jurisdiction of this action to make a final determination on the
merits of Innerlight's claim.

Thereafter,  Matrix filed a counterclaim  alleging that a contract did exist and
that  Innerlight  had breached this  contract.  Both parties then agreed to stay
discovery,  concluding  that  discovery was not necessary and both filed motions
for summary judgment to resolve the case.

On January 17, 2007, arguments were presented to the Court on the parties' cross
motions for summary judgment and the Court ruled in Innerlight's favor,  finding
that no contract existed between the parties and that Innerlight was entitled to
return over $150,000 in product to Matrix for reimbursement.  The wording of the
final  Order  granting  Innerlight's  motion and  rejecting  Matrix's  claims is
currently being exchanged and has yet to be entered by the Court. When the Order
is entered by the Court, Matrix has the right to appeal.


                                      F-18


                   THE MATRIX GROUP, LLC VS. INNERLIGHT, INC.

           (U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA)

On July 6, 2006 The Matrix Group,  LLC commenced an action  against  Innerlight,
Inc. in the United States  District Court for the Southern  District of Florida.
The  action  brought  by The  Matrix  Group,  LLC  relates to the same facts and
circumstances  as the  action  commenced  in March of 2006 by  Innerlight,  Inc.
against The Matrix Group,  LLC in Utah County,  Utah.  The Matrix Group,  LLC is
claiming that according to the terms of the alleged contract, Innerlight has the
obligation  to purchase  $28,750,000  of  additional  product from April 6, 2006
through  October  17,  2013 and that The  Matrix  Group,  LLC is  entitled  to a
judgment against Innerlight, Inc. for alleged obligations to purchase product in
the amount of $744,050  from the period of October 18,  2005  through  April 17,
2006. The United States District Court for the Southern  District of Florida has
stayed the action pending the outcome of the previously  referenced  Utah action
between Innerlight Inc. and The Matrix Group, LLC.

The Company  believes that the  plaintiff's  (The Matrix Group,  LLC) claims are
without merit and is vigorously  defending  those claims and is prosecuting  its
action on its complaint in Utah.  Based upon the  information the Company has at
this time, it believes that the plaintiff's actions are without merit.  However,
at this time no prediction as to the outcome can be made.

                          TERMINATED LEGAL PROCEEDINGS

            ROBERT CAFFREY AND SUE ANNE CAFFREY, H/W VS. THE QUIGLEY
                                 CORPORATION, ET
                                       AL.
                 (U.S.D.C., D.N.J. DOCKET NO.: 05-05608-KSH-PS)

On  October  12,  2005,  the  plaintiffs  filed an action  against  The  Quigley
Corporation  (the "Company") in the Superior Court of New Jersey,  Essex County,
which was not served until  November 9, 2005. On November 28, 2005,  the Company
removed the case to the United  States  District  Court for the  District of New
Jersey (Newark  Vicinage).  The complaint was amended on July 21, 2006 to add an
additional  defendant,  DPT  Laboratories,  Ltd.  The  action  alleges  that the
plaintiff  suffered  certain  losses and  injuries as a result of the  Company's
nasal spray product.  Among the  allegations  of plaintiffs are strict  products
liability,  breach of express  warranties,  violation of New  Jersey's  Consumer
Fraud Act and a loss consortium claim.

This case was recently settled at the direction of the insurance  carrier out of
insurance proceeds.

                    DOLORES SMITH VS. THE QUIGLEY CORPORATION
              (PA. C.C.P., BUCKS COUNTY, DOCKET NO.: 0503401-18-1)

On May 25,  2005,  a complaint  was filed in the Court of Common  Pleas of Bucks
County,  Pennsylvania.  The complaint was served on the Company on or about June
14, 2005. The  plaintiff's  complaint  consists of counts of negligence,  strict
product liability,  breach of express warranty,  breach of implied warranty, and
violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law
and other  Consumer  Protection  Statutes  relating to the use of the  Company's
Cold-Eeze Nasal Spray Product.

The plaintiff has recently  agreed to dismiss her complaint  with  prejudice and
the appropriate court filings are currently being finalized.

                RICHARD FLYNN VS. THE QUIGLEY CORPORATION, ET AL

On May 20, 2005, a complaint was filed in the Superior  Court of Orange  County,
California.  The action alleged that the plaintiff  suffered  certain losses and
injuries as a result of using the Company's  nasal spray product.  The complaint
consisted of causes of action sounding in negligence,  products  liability,  and
punitive damages. The lawsuit has been resolved in exchange for the payment of a
nominal sum out of insurance proceeds at the direction of the insurance carrier.

This case was recently settled at the direction of the insurance  carrier out of
insurance proceeds.

               KEITH J. KOCHIE VS. THE QUIGLEY CORPORATION, ET AL

On August 2, 2005, a complaint was filed in the United States District Court for
the Eastern  District of New York. The complaint was served on the Company on or
about  September 1, 2005. The  plaintiff's  complaint  consisted  of  counts for


                                      F-19


negligence,  strict product  liability,  breach of express  warranty,  breach of
implied  warranties,   fraudulent  misrepresentation,   fraudulent  concealment,
negligent  misrepresentation,  and fraud and deceit  relating  to the use of the
Company's Cold-Eeze Nasal Spray Product.

This case was recently settled at the direction of the insurance  carrier out of
insurance proceeds.

               GARRY KOMINAKIS VS. THE QUIGLEY CORPORATION, ET AL

On December 13, 2005,  an action was brought in the Superior  Court of the State
of California (Western Division - Los Angeles).  The complaint was served on the
Company on December 27, 2005. The case was removed to Federal  District Court on
January 25, 2006. The action alleged that the plaintiff  suffered certain losses
and  injuries  as a result of using  the  Company's  nasal  spray  product.  The
complaint  consisted  of  counts  for  strict  liability  (products  liability),
negligence, and breach of implied and express warranties.

This case was recently settled at the direction of the insurance  carrier out of
insurance proceeds.

                  PAIGE D. DAVISON VS. THE QUIGLEY CORPORATION

On  February  26,  2004,  the  plaintiff  filed an action  against  The  Quigley
Corporation  (the  "Company"),  which was not served  until  April 5, 2004.  The
action  alleged that the  plaintiff  suffered  certain  losses and injuries as a
result of using the Company's nasal spray product.  Among the allegations of the
plaintiff  were that the nasal spray was defective and  unreasonably  dangerous,
lacked proper and adequate warnings and/or instructions, and was not fit for the
purposes and uses intended.

This case was recently settled at the direction of the insurance  carrier out of
insurance proceeds.

                CYNTHIA AARON VS. THE QUIGLEY CORPORATION, ET AL

On March 15,  2005, a complaint  was filed in the  Superior  Court for San Diego
County, California.  This complaint was served on the Company on April 21, 2005.
The plaintiff's  complaint consisted of causes of action sounding in negligence,
negligent products liability,  breach of warranty of merchantability,  breach of
express  warranty,  strict  products  liability and failure to warn.  The action
alleged that the plaintiff  suffered  certain losses and injuries as a result of
using the Company's nasal spray product.

This case was recently settled at the direction of the insurance  carrier out of
insurance proceeds.

            AXIS SPECIALTY INSURANCE CO. VS. THE QUIGLEY CORPORATION
                          (E.D. PA CIVIL NO. 05-CV-195)

This action,  filed in January 2005 in the Federal  Eastern  District  Court for
Pennsylvania,  stems from a dispute  between  the  Company and one of its excess
liability insurance carriers,  who seeks a judicial declaration of its insurance
coverage  obligations  under a  policy  which  terminates  in  March  2005.  The
carrier's  action follows a complaint by the Company filed in December 2004 with
the Pennsylvania  Insurance Commission,  which ultimately sided with the Company
in determining that the carrier failed to observe proper notification procedures
when it first sought to limit,  or  alternatively,  to insure at a substantially
higher premium,  its coverage  obligations.  This action seeks to deny insurance
coverage for certain  product  liability  claims based on  occurrences  prior to
April 6, 2004.

The Company filed a counterclaim  requesting a declaration of insurance coverage
under the insurance policy referenced above. The litigation  potentially affects
the amount of the  Company's  liability  coverage  for the nasal spray  personal
injury  litigation  described above. An order dated February 16, 2006 found that
Axis has no obligation to extend coverage for certain product  liability  claims
based on  occurrences  prior to April 6, 2004 but does cover  occurrences  after
that date  through  November  29,  2006.  The  Company  has  purchased  extended
reporting  coverage for claims after April 6, 2004 through November 29, 2006 for
occurrences  between April 4, 2004 and November 29, 2005.  The Court granted the
Company's  motion that a "claim" within the meaning of the Axis policy must be a
claim for damages for personal injury or property damages.

Based upon the  information the Company has at this time relative to the defense
of claims  occurring  before April 6, 2004, the Company  believes the claims are
without merit and is fully  defending  those claims through  insurance  counsel.
However, at this time no prediction as to the outcome can be made of these cases
and  whether  insurance  coverage  from the  period  prior  to April 6,  2004 is
adequate for coverage of all claims.

NOTE 10 - TRANSACTIONS AFFECTING STOCKHOLDERS' EQUITY

On  September 8, 1998,  the  Company's  Board of  Directors  declared a dividend
distribution of Common Stock Purchase Rights (the "Rights"),  thereby creating a
Stockholder  Rights  Plan  (the  "Plan").   The  dividend  was  payable  to  the
stockholders   of  record  on  September  25,  1998.  Each  Right  entitles  the
stockholder  of record to purchase from the Company that number of Common Shares
having a combined  market value equal to two times the Rights  exercise price of
$45. The Rights are not exercisable  until the distribution  date, which will be
the earlier of a public  announcement  that a person or group of  affiliated  or
associated persons has acquired 15% or more of the outstanding common shares, or
the announcement of an intention to make a tender or exchange offer resulting in
the  ownership of 15% or more of the  outstanding  common  shares by a similarly
constituted  party.  The dividend has the effect of giving the stockholder a 50%
discount on the share's  current market value for exercising  such right. In the
event of a cashless  exercise of the Right,  and the acquirer has acquired  less
than a 50% beneficial  ownership of the Company,  a stockholder may exchange one
Right for one common share of the Company.  The Final  Expiration of the Plan is
September 25, 2008.

Since the inception of the stock buy-back program in January 1998, the Board has
subsequently  increased  the  authorization  on  five  occasions,  for  a  total
authorized  buy-back of 5,000,000  shares or  approximately  38% of the previous
shares  outstanding.  Such shares are  reflected  as treasury  stock and will be
available for general corporate purposes.  From the initiation of the plan until
December  31,  2005,  4,159,191  shares  have  been  repurchased  at a  cost  of
$24,042,801  or an average cost of $5.78 per share.  No shares were  repurchased
during 2004 to 2006.

In July 2004,  the Company  announced that its Board of Directors had approved a
distribution-in-kind  to its  stockholders  of  approximately  500,000 shares of
common  stock  of  Suncoast  Naturals,  Inc. (OTCBB: SNTL),  which  it  acquired


                                      F-20


through a sale of the Company's 60% equity interest in Caribbean Pacific Natural
Products, Inc. These shares were distributed on the basis of approximately .0434
shares of Suncoast  common  stock for each share of the  Company's  common stock
owned of record on September 1, 2004, with fractional  shares paid in cash. As a
result of the Company's  dividend-in-kind  to  stockholders  and the issuance of
499,282  shares of common  stock of Suncoast  in  September  2004,  representing
approximately  two-thirds of its common stock ownership,  the remaining  250,718
shares,  owned by the  Company are valued at $26,455 and such amount is included
in Other Assets in the  Consolidated  Balance  Sheet at December 31, 2006.  This
transaction  was  completed in September  2004  resulting in a  dividend-in-kind
distribution  of  $260,000  which   represents  the  fair  value  of  the  asset
transferred  and is reflected as a reduction of retained  earnings and a related
gain on the dividend of stock of $198,786 which is reflected on the Statement of
Operations.  On October 1, 2004, the Company issued 113,097 shares of its common
stock to the  stockholders  of JoEL,  Inc., in order to satisfy the common stock
component of acquiring certain assets and assuming certain  liabilities of JoEl,
Inc. (see Note 3)

NOTE 11 - STOCK COMPENSATION

Stock  options for purchase of the  Company's  common stock have been granted to
both  employees  and  non-employees.  Options  are  exercisable  during a period
determined  by the  Company,  but in no event later than ten years from the date
granted.

On December  2, 1997,  the  Company's  Board of  Directors  approved a new Stock
Option Plan ("Plan")  which was amended in 2005 and provides for the granting of
up to four  million  five  hundred  thousand  shares of which  1,198,750  remain
available for grant at December 31, 2006. Under this Plan, the Company may grant
options  to  employees,  officers  or  directors  of  the  Company  at  variable
percentages  of the  market  value of stock at the date of grant.  No  incentive
stock option shall be exercisable more than ten years after the date of grant or
five years where the individual owns more than ten percent of the total combined
voting power of all classes of stock of the Company.  Stockholders  approved the
Plan in 1998. A total of zero,  520,000 and 500,000  options were granted  under
this Plan during the years ended December 31, 2006, 2005 and 2004, respectively.

A summary of the status of the Company's  stock options and warrants  granted to
both  employees  and  non-employees  as of December 31, 2006,  2005 and 2004 and
changes during the years then ended is presented below:

YEAR ENDED DECEMBER 31, 2006:

                                                 Employees                 Non-Employees                     Total
                                        ------------------------       ---------------------        ---------------------
                                                        Weighted                    Weighted                     Weighted
                                                         Average                     Average                      Average
                                           Shares       Exercise       Shares       Exercise        Shares       Exercise
                                           (,000)         Price        (,000)         Price         (,000)         Price
                                        ---------------------------------------------------------------------------------
Options/warrants outstanding                4,099         $6.28          525          $9.42          4,624         $6.64
  at beginning of period
Additions/deductions:
  Granted                                      --            --           --             --             --            --
  Exercised                                 1,012          1.94           --             --          1,012          1.94
  Cancelled                                    15          7.24           --             --             15          7.24
                                        ---------------------------------------------------------------------------------
Options/warrants outstanding
  at end of period                          3,072         $7.71          525          $9.42          3,597         $7.96
                                        ---------------------------------------------------------------------------------
Options/warrants exercisable
  at end of period                          3,072                        525                         3,597
                                        =================================================================================

Weighted average fair value of                 --            --           --             --             --            --
  grants for the year

Price range of  options/warrants:
  Exercised                             $1.75 - $ 9.50                    -                      $1.75 - $ 9.50
  Outstanding                           $0.81 - $13.80             $0.81  -  $13.80              $0.81 - $13.80
  Exercisable                           $0.81 - $13.80             $0.81  -  $13.80              $0.81 - $13.80


                                      F-21


YEAR ENDED DECEMBER 31, 2005:

                                                 Employees                 Non-Employees                     Total
                                        ------------------------       ---------------------        ---------------------
                                                        Weighted                    Weighted                     Weighted
                                                         Average                     Average                      Average
                                           Shares       Exercise       Shares       Exercise        Shares       Exercise
                                           (,000)         Price        (,000)         Price         (,000)         Price
                                        ---------------------------------------------------------------------------------
Options/warrants outstanding                3,880         $5.35          445          $8.64          4,325         $5.68
   at  beginning of period
Additions/deductions:
  Granted                                     440         13.80           80          13.80            520         13.80
  Exercised                                   112          4.87           --             --            112          4.87
  Cancelled                                   109          4.80           --             --            109          4.80
                                        ---------------------------------------------------------------------------------
Options/warrants outstanding
   at end of period                         4,099         $6.28          525          $9.42          4,624         $6.64
                                        ---------------------------------------------------------------------------------
Options/warrants exercisable
   at end of period                         4,099                        525                         4,624
                                        =================================================================================

Weighted average fair value of                            $7.47                       $7.47                        $7.47
   grants for the year

Price range of options/warrants:
   Exercised                            $0.81 - $ 9.50                    -                      $0.81 - $ 9.50
   Outstanding                          $0.81 - $13.80             $0.81  -  $13.80              $0.81 - $13.80
   Exercisable                          $0.81 - $13.80             $0.81  -  $13.80              $0.81 - $13.80

YEAR ENDED DECEMBER 31, 2004:

                                                 Employees                 Non-Employees                     Total
                                        ------------------------       ---------------------        ---------------------
                                                        Weighted                    Weighted                     Weighted
                                                         Average                     Average                      Average
                                           Shares       Exercise       Shares       Exercise        Shares       Exercise
                                           (,000)         Price        (,000)         Price         (,000)         Price
                                        ---------------------------------------------------------------------------------
Options/warrants outstanding                3,486         $4.82        1,115          $9.38          4,601         $5.92
   at beginning of period
Additions/deductions:
  Granted                                     420          9.50           80           9.50            500          9.50
  Exercised                                    26          1.98           --             --             26          1.98
  Cancelled                                    --            --          750           9.83            750          9.83
                                        ---------------------------------------------------------------------------------
Options/warrants outstanding
   at end of period                         3,880         $5.35          445          $8.64          4,325         $5.68
                                        ---------------------------------------------------------------------------------
Options/warrants exercisable
   at end of period                         3,880                        445                         4,325
                                        =================================================================================

Weighted average fair value of                            $4.46                       $4.46                        $4.46
   grants for the year

Price range of options/warrants:
   Exercised                            $0.81 - $ 5.19                    -                       $0.81 - $ 5.19
   Outstanding                          $0.81 - $10.00              $0.81 -  $10.00               $0.81 - $10.00
   Exercisable                          $0.81 - $10.00              $0.81 -  $10.00               $0.81 - $10.00


                                      F-22


The following table summarizes  information about stock options  outstanding and
stock options  exercisable,  as granted to both employees and non-employees,  at
December 31, 2006:

                                      Employees                                          Non-Employees
                                      ---------                                          -------------

                                      Weighted
                                      Average                                               Weighted
                                     Remaining                                              Average           Weighted
Range of Exercise          Number   Contractual    Weighted Average            Number      Remaining          Average
      Prices          Outstanding       Life        Exercise Price        Outstanding   Contractual Life   Exercise Price
-------------------------------------------------------------------------------------------------------------------------
$0.81 - $5.49           1,167,500       4.2              $3.40                 75,000         4.6              $3.23
$8.11 - $13.80          1,904,500       5.3             $10.34                450,000         3.7              $10.45
                      -----------                                         -----------
                        3,072,000                                             525,000
                      ===========                                         ===========

Options and warrants outstanding as of December 31, 2006 expire from May 5, 2007
through December 11, 2015, depending upon the date of grant.

The total  intrinsic value of options  exercised  during the year ended December
31, 2006 was $6,371,138.  The aggregate  intrinsic value of options  outstanding
and exercisable at December 31, 2006 was approximately $2,854,000.

NOTE 12 - DEFINED CONTRIBUTION PLANS

During 1999, the Company implemented a 401(k) defined  contribution plan for its
employees.  The Company's contribution to the plan is based on the amount of the
employee plan contributions and compensation.  The Company's contribution to the
plan in 2006, 2005 and 2004 was approximately $490,000,  $414,000, and $283,000,
respectively.   The  plan  was  amended  in  October  2004  to  accommodate  the
participation of employees of Quigley Manufacturing Inc.

NOTE 13 - INCOME TAXES

The provision (benefit) for income taxes, consists of the following:

                                           Year Ended          Year Ended          Year Ended
                                        December 31, 2006  December 31, 2005   December 31, 2004
                                        -----------------  -----------------   -----------------

      Current:
           Federal                         $    45,270         $    65,000                   --
           State                                43,329                  --                   --
                                           -----------         -----------          -----------
                                           $    88,599         $    65,000                   --
                                           -----------         -----------          -----------
      Deferred:
           Federal                          (1,331,679)        $   815,738          $   436,353
           State                               106,030             192,107              129,453
                                           -----------         -----------          -----------
                                            (1,225,649)          1,007,845              565,806
                                           -----------         -----------          -----------

      Change in valuation allowance          1,225,649          (1,007,845)            (565,806)
                                           -----------         -----------          -----------

      Total                                $    88,599         $    65,000                   --
                                           ===========         ===========          ===========

A reconciliation  of the statutory  federal income tax expense  (benefit) to the
effective tax is as follows:

                                            Year Ended          Year Ended          Year Ended
                                        December 31, 2006   December 31, 2005   December 31, 2004
                                        -----------------   -----------------   -----------------

      Statutory rate - Federal            ($   564,314)        $ 1,115,773         $   153,973
      State taxes net of federal benefit       (98,577)            126,791              85,439
      Permanent differences and other         (474,159)           (169,719)            326,394
                                           -----------         -----------         -----------
                                            (1,137,050)          1,072,845             565,806
                                           -----------         -----------         -----------

      Less change in valuation allowance     1,225,649          (1,007,845)           (565,806)
                                           -----------         -----------         -----------

                Total                      $    88,599         $    65,000                  --
                                           ===========         ===========         ===========


                                      F-23


The tax effects of the primary "temporary  differences"  between values recorded
for assets and liabilities for financial  reporting purposes and values utilized
for  measurement  in  accordance  with tax  laws  giving  rise to the  Company's
deferred tax assets are as follows:

                                          Year Ended          Year Ended          Year Ended
                                      December 31, 2006   December 31, 2005   December 31, 2004
                                      -----------------   -----------------   -----------------

      Net operating loss carry-forward   $ 6,314,828         $ 4,034,746         $ 4,758,315
      Consulting-royalty costs             1,457,076             317,850                  --
      Bad debt expense                       138,439             121,588
                                                                                     107,498
      Other                                  297,331             666,857
                                                                                     618,943
      Valuation allowance                 (8,498,345)         (4,788,366)         (5,546,760)
                                         -----------         -----------         -----------
                Total                             --                  --                  --
                                         ===========         ===========         ===========

Certain  exercises  of options and  warrants,  and  restricted  stock issued for
services that became  unrestricted  resulted in  reductions  to taxes  currently
payable and a  corresponding  increase to  additional-paid-in-capital  for prior
years.  In  addition,  certain tax  benefits  for option and  warrant  exercises
totaling    $6,581,458    are    deferred    and    will    be    credited    to
additional-paid-in-capital  when the NOL's  attributable  to these exercises are
utilized.  As a result,  these NOL's will not be available to offset  income tax
expense. The net operating loss carry-forwards that currently  approximate $16.6
million for federal purposes will be expiring through 2026. Additionally,  there
are net operating loss  carry-forwards  of $16.9 million for state purposes that
will be expiring  through 2016.  Until  sufficient  taxable income to offset the
temporary  timing  differences  attributable  to operations,  the tax deductions
attributable to option, warrant and stock activities and alternative minimum tax
credits of $110,270  are  assured,  a  valuation  allowance  equaling  the total
deferred tax asset is being provided.

NOTE 14 - EARNINGS PER SHARE

Basic earnings per share ("EPS")  excludes  dilution and is computed by dividing
income  available to common  stockholders  by the  weighted - average  number of
common  shares  outstanding  for the period.  Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were  exercised  or  converted  into common stock or resulted in the issuance of
common  stock  that  shared in the  earnings  of the  entity.  Diluted  EPS also
utilizes the treasury  stock method which  prescribes a theoretical  buy back of
shares from the  theoretical  proceeds of all options and  warrants  outstanding
during  the  period.  Since  there is a large  number of  options  and  warrants
outstanding,  fluctuations  in the  actual  market  price can have a variety  of
results for each period presented.

A  reconciliation  of the applicable  numerators and  denominators of the income
statement periods presented is as follows  (millions,  except earnings per share
amounts):

                                Year Ended                        Year Ended                        Year Ended
                             December 31, 2006                December 31, 2005                 December 31, 2004
                       ------------------------------------------------------------------------------------------------

                        Loss      Shares       EPS       Income     Shares       EPS       Income     Shares       EPS
                       ------------------------------------------------------------------------------------------------

      Basic EPS        ($1.7)       12.3      ($0.14)     $ 3.2       11.7      $0.28       $ 0.5       11.5      $0.04

      Dilutives:
      Options and
      Warrants            --          --                     --        1.6      (0.04)         --        2.9      (0.01)
                       ------------------------------------------------------------------------------------------------
      Diluted EPS      ($1.7)       12.3      ($0.14)     $ 3.2       13.3      $0.24       $ 0.5       14.4      $0.03
                       ================================================================================================

Options and  warrants  outstanding  at  December  31,  2006,  2005 and 2004 were
3,597,000,  4,623,750,  and 4,324,500  respectively.  Stock options and warrants
with  exercise  prices above  average  market price in the amount of 520,000 and
1,481,500  shares for the years ended December 31, 2005 and 2004,  respectively,
were not included in the  computation of diluted  earnings per share as they are
anti-dilutive.  No options and warrants were included in the 2006 computation of
diluted earnings because the effect would be anti-dilutive due to loss.

NOTE 15 - RELATED PARTY TRANSACTIONS

An  agreement  between the Company and the  founders  Mr. Guy J. Quigley and Mr.
Charles A. Phillips,  both officers and stockholders of the Company, was entered
into  on June 1, 1995. The founders, in consideration  of the acquisition of the


                                      F-24


Cold-Eeze(R)  cold therapy  product,  shared a total  commission of five percent
(5%), on sales collected,  less certain  deductions until this agreement expired
on May 31,  2005.  For the years ended  December  31, 2005 and 2004,  amounts of
$366,788 and $1,043,346, respectively, were paid or payable under such founder's
commission  agreements.  Amounts  payable under such  agreements at December 31,
2006 and 2005 were zero.

The Company is in the process of acquiring licenses in certain countries through
related party entities whose  stockholders  include Mr. Gary Quigley, a relative
of the Company's Chief Executive Officer.  Fees amounting to $145,500,  $266,882
and $369,000  have been paid to a related  entity  during  2006,  2005 and 2004,
respectively to assist with the regulatory aspects of obtaining such licenses.

NOTE 16 - SEGMENT INFORMATION

The basis for presenting  segment  results  generally is consistent with overall
Company reporting.  The Company reports information about its operating segments
in  accordance  with  Financial  Accounting  Standard  Board  Statement No. 131,
"Disclosure  About  Segments of an Enterprise  and Related  Information,"  which
establishes  standards for  reporting  information  about a company's  operating
segments. All consolidating items are included in Corporate & Other.

The Company's  operations are divided into four reportable  segments as follows:
The Quigley  Corporation (Cold- Remedy),  whose main product is Cold-Eeze(R),  a
proprietary zinc gluconate  glycine lozenge for the common cold;  Darius (Health
and  Wellness),  whose  business is the sale and direct  marketing of a range of
health and wellness products;  Quigley Manufacturing  (Contract  Manufacturing),
which is the production  facility for the Cold-Eeze(R)  lozenge product and also
performs contract manufacturing services for third party customers,  and Pharma,
(Ethical  Pharmaceutical),   currently  involved  in  research  and  development
activity to develop patent applications for potential pharmaceutical products.

Financial  information relating to 2006, 2005 and 2004 continuing  operations by
business segment follows:

-------------------------------------------------------------------------------------------------------------------------------
As of and for the year ended                    Health and        Contract          Ethical        Corporate &
December 31, 2006               Cold Remedy      Wellness      Manufacturing    Pharmaceutical        Other            Total
-------------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers-domestic           $ 24,815,850    $ 11,378,290     $  2,034,179     $         --     $         --     $ 38,228,319
  Customers-international      $         --    $  3,896,650     $         --     $         --               --     $  3,896,650
  Inter-segment                $         --    $         --     $  6,596,371     $         --     $ (6,596,371)    $         --
Segment operating profit
   (loss)                      $  3,588,285    ($ 1,227,604)   ($    432,911)   ($  4,309,183)   ($     10,227)   ($  2,391,640)
Depreciation                   $    449,580    $    181,128     $    696,212     $         --     $         --     $  1,326,920
Capital expenditures           $    562,144    $    109,837     $     25,499     $         --     $         --     $    697,480
Total assets                   $ 38,125,367    $  4,169,565     $  6,065,104     $         --    ($ 13,515,002)    $ 34,845,034

-------------------------------------------------------------------------------------------------------------------------------
As of and for the year ended                    Health and        Contract         Ethical         Corporate &
December 31, 2005               Cold Remedy      Wellness      Manufacturing    Pharmaceutical        Other            Total
-------------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers-domestic           $ 29,284,651    $ 16,034,960     $  3,900,342     $         --     $         --     $ 49,219,953
  Customers-international      $         --    $  4,438,090     $         --     $         --     $         --     $  4,438,090
  Inter-segment                $         --    $         --     $  7,090,523     $         --    ($  7,090,523)    $         --
Segment operating profit
   (loss)                      $  6,693,192    $    859,956    ($     80,419)   ($  4,044,162)   ($    449,137)    $  2,979,430
Depreciation                   $    387,840    $    143,726     $    872,541     $         --     $         --     $  1,404,107
Capital expenditures           $    228,688    $     35,523     $    267,002     $         --     $         --     $    531,213
Total assets                   $ 38,171,897    $  4,918,271     $  7,042,169     $         --     ($14,156,698)    $ 35,975,639


                                      F-25


-------------------------------------------------------------------------------------------------------------------------------
As of and for the year ended                    Health and        Contract         Ethical         Corporate &
December 31, 2004               Cold Remedy      Wellness       Manufacturing   Pharmaceutical        Other            Total
-------------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers-domestic           $ 22,834,249    $ 17,484,246     $    752,355     $         --     $         --     $ 41,070,850
  Customers-international      $         --       2,877,145               --     $         --     $         --     $  2,877,145
  Inter-segment                $         --    $         --     $  1,975,779     $         --    ($  1,975,779)    $         --
Segment operating profit
   (loss)                      $  1,618,534    $  1,509,001     $    406,811    ($  3,056,757)   ($    295,602)    $    181,987
Depreciation                   $    340,828    $    168,696     $    112,824     $         --     $         --     $    622,348
Capital expenditures           $    250,246    $     32,569     $  4,388,153     $         --     $         --     $  4,670,968
Total assets                   $ 31,236,129    $  6,143,769     $  6,806,026     $         --     ($12,656,168)    $ 31,529,756

NOTE:  The stated  capital  expenditure  of  $4,388,153  related to the Contract
Manufacturing  segment for the year ended  December  31, 2004 is inclusive of an
amount of $4,360,829  following the acquisition by the Company of certain assets
of JoEl, Inc., on October 1, 2004.

NOTE 17 - QUARTERLY INFORMATION (UNAUDITED)

                                                                         Quarter Ended
                                                --------------------------------------------------------------
                                                  March 31,        June 30,       September 30,   December 31,
                                                --------------------------------------------------------------
2006
Net Sales                                       $ 10,266,038     $  6,182,467     $ 11,480,634    $ 14,195,830
Gross Profit                                    $  5,312,584     $  2,309,415     $  6,259,667    $  8,996,699
Administration                                  $  3,705,761     $  3,100,378     $  3,195,182    $  3,122,416
Operating expenses                              $  6,925,209     $  5,036,669     $  5,369,992    $  7,938,135
(Loss) Income from operations                  ($  1,612,625)   ($  2,727,254)    $    889,675    $  1,058,564
(Loss) Income from continuing operations       ($  1,612,625)   ($  2,727,254)    $    889,675    $  1,058,564
Net (Loss) Income                              ($  1,454,295)   ($  2,618,319)    $  1,078,634    $  1,245,635

Basic EPS
   (Loss) Income  from continuing operations   ($       0.12)   ($       0.21)    $       0.09    $       0.10
   Net (Loss) Income                           ($       0.12)   ($       0.21)    $       0.09    $       0.10
Diluted EPS
   (Loss) Income from continuing operations    ($       0.12)   ($       0.21)    $       0.08    $       0.09
   Net (Loss) Income                           ($       0.12)   ($       0.21)    $       0.08    $       0.09

                                                                         Quarter Ended
                                                --------------------------------------------------------------
                                                  March 31,        June 30,       September 30,   December 31,
                                                --------------------------------------------------------------
2005
Net Sales                                       $ 11,753,270     $  8,844,173     $ 15,319,980    $ 17,740,620
Gross Profit                                    $  5,702,972     $  3,033,521     $  8,294,204    $ 10,803,261
Administration                                  $  2,994,769     $  2,986,507     $  2,897,941    $  3,777,025
Operating expenses                              $  5,897,903     $  4,893,925     $  5,380,400    $  8,682,300
(Loss) Income from operations                  ($    194,931)   ($  1,860,404)    $  2,913,804    $  2,120,961
(Loss) Income from continuing operations       ($    154,495)   ($  1,790,410)    $  2,998,503    $  2,163,086
Net (Loss) Income                              ($    154,495)   ($  1,790,410)    $  2,998,503    $  2,163,086

Basic EPS
   (Loss) Income  from continuing operations   ($       0.01)   ($       0.15)    $       0.26    $       0.19
   Net (Loss) Income                           ($       0.01)   ($       0.15)    $       0.26    $       0.19
Diluted EPS
   (Loss) Income from continuing operations    ($       0.01)   ($       0.15)    $       0.23    $       0.16
   Net (Loss) Income                           ($       0.01)   ($       0.15)    $       0.23    $       0.16


                                      F-26


                     FOURTH QUARTER SEGMENT DATA (UNAUDITED)

---------------------------------------------------------------------------------------------------------------------------------
As of and for the three                            Health and       Contract          Ethical        Corporate &
months ended December 31, 2006    Cold Remedy       Wellness      Manufacturing   Pharmaceutical        Other            Total
---------------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers-domestic             $ 10,697,062    $  2,107,799     $    527,072     $         --     $         --     $ 13,331,933
  Customers-international        $         --    $    863,896     $         --     $         --     $         --     $    863,896
  Inter-segment                  $         --    $         --     $  1,798,932     $         --    ($  1,798,932)    $         --
Segment operating profit
   (loss)                        $  2,645,269   ($    481,188)   ($     11,639)   ($  1,420,522)    $    326,644     $  1,058,564
Depreciation                     $     97,637    $     55,118     $    180,249     $         --     $         --     $    333,004
Capital expenditures             $    220,632    $      1,883     $      7,604     $         --     $         --     $    230,119

---------------------------------------------------------------------------------------------------------------------------------
As of and for the three                            Health and       Contract          Ethical        Corporate &
months ended December 31, 2005    Cold Remedy       Wellness      Manufacturing   Pharmaceutical        Other            Total
---------------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers-domestic             $ 12,144,783    $  3,752,464     $    694,137     $         --     $         --     $ 16,591,384
  Customers-international        $         --    $  1,149,236     $         --     $         --     $         --     $  1,149,236
  Inter-segment                  $         --    $         --     $  2,623,396     $         --    ($  2,623,396)    $         --
Segment operating profit
   (loss)                        $  2,480,622    $      8,074     $    264,947    ($    956,382)    $    323,700     $  2,120,961
Depreciation                     $     99,142    $     35,848     $    225,355     $         --     $         --     $    360,345
Capital expenditures             $    139,756    $      1,094     $    212,525     $         --     $         --     $    353,375

---------------------------------------------------------------------------------------------------------------------------------
As of and for the three                            Health and        Contract         Ethical        Corporate &
months ended December 31, 2004    Cold Remedy       Wellness      Manufacturing   Pharmaceutical        Other            Total
---------------------------------------------------------------------------------------------------------------------------------
Revenues
  Customers-domestic             $ 12,151,638    $  4,247,088     $    752,355     $         --     $         --     $ 17,151,081
  Customers-international        $         --    $    599,257     $         --     $         --     $         --     $    599,257
  Inter-segment                  $         --    $         --     $  1,975,779     $         --    ($  1,975,779)    $         --
Segment operating profit
   (loss)                        $  2,491,935    $    187,979     $    406,811    ($    819,241)   ($    295,602)    $  1,971,882
Depreciation                     $     90,102    $     41,157     $    112,824     $         --     $         --     $    244,083
Capital expenditures             $    130,716    $      6,403     $  4,388,153     $         --     $        202     $  4,525,474

NOTE:  The stated  capital  expenditure  of  $4,388,153  related to the Contract
Manufacturing  segment  for  the  year  of 2004 is  inclusive  of an  amount  of
$4,360,829  following the  acquisition by the Company of certain assets of JoEl,
Inc., on October 1, 2004.


                                      F-27


                     RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of The Quigley Corporation is responsible for the information and
representations contained in this report. Management believes that the financial
statements have been prepared in conformity with generally  accepted  accounting
principles  and that the other  information  in this annual report is consistent
with those  statements.  In preparing  the financial  statements,  management is
required to include amounts based on estimates and judgments,  which it believes
are reasonable under the circumstances.

In fulfilling its  responsibilities  for the integrity of the data presented and
to  safeguard  the  Company's  assets,  management  employs a system of internal
accounting  controls designed to provide  reasonable  assurance,  at appropriate
cost,  that  the  Company's  assets  are  protected  and that  transactions  are
appropriately  authorized,  recorded, and summarized.  This system of control is
supported by the selection of qualified personnel, by organizational assignments
that   provide   appropriate   delegation   of   authority   and   division   of
responsibilities, and by the dissemination of policies and procedures.


/s/ Guy J. Quigley                                               March 2, 2007
--------------------------------------------------------       -----------------
Guy J. Quigley, Chairman of the Board,                                Date
  (President, Chief Executive Officer)


/s/ George J. Longo                                              March 2, 2007
--------------------------------------------------------       -----------------
George J. Longo, Vice President, Chief Financial Officer              Date
   (Principal Financial and Accounting Officer)


                                      F-28


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of The Quigley Corporation

We have audited the accompanying balance sheets of The Quigley Corporation as of
December  31,  2006  and  2005,  and  the  related   statements  of  operations,
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period ended  December 31, 2006. We also have audited  management's  assessment,
included  in the  accompanying  Management's  2006  Annual  Report  on  Internal
Controls,  that The Quigley  Corporation  maintained  effective internal control
over financial reporting as of December 31, 2006, based on criteria  established
in INTERNAL CONTROL--INTEGRATED  FRAMEWORK issued by the Committee of Sponsoring
Organizations  of the  Treadway  Commission  (COSO).  The Quigley  Corporation's
management  is  responsible  for these  financial  statements,  for  maintaining
effective internal control over financial  reporting,  and for its assessment of
the   effectiveness   of  internal   control  over  financial   reporting.   Our
responsibility  is to  express  an opinion  on these  financial  statements,  an
opinion on management's  assessment,  and an opinion on the effectiveness of the
company's internal control over financial reporting based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements are free of material  misstatement  and whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit of financial statements included examining, on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall financial  statement  presentation.  Our
audit of  internal  control  over  financial  reporting  included  obtaining  an
understanding   of  internal  control  over  financial   reporting,   evaluating
management's  assessment,  testing  and  evaluating  the  design  and  operating
effectiveness  of internal  control,  and performing such other procedures as we
considered necessary in the circumstances.  We believe that our audits provide a
reasonable basis for our opinions.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of The Quigley  Corporation as of
December 31, 2006 and 2005, and the results of its operations and its cash flows
for each of the  years in the  three-year  period  ended  December  31,  2006 in
conformity with accounting principles generally accepted in the United States of
America.  Also,  in  our  opinion,  management's  assessment  that  The  Quigley
Corporation maintained effective internal control over financial reporting as of
December 31, 2006 is fairly stated, in all material respects,  based on criteria
established in INTERNAL CONTROL--INTEGRATED FRAMEWORK issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).  Furthermore, in our
opinion, The Quigley Corporation maintained, in all material respects, effective
internal  control over  financial  reporting  as of December 31, 2006,  based on
criteria  established in INTERNAL  CONTROL--INTEGRATED  FRAMEWORK  issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As  discussed  in Note 1, the  Company  changed  its  method of  accounting  for
stock-based compensation expense in 2006.

/s/ Amper Politziner & Mattia P.C.
--------------------------------------
Amper Politziner & Mattia P.C.
Edison, New Jersey

March 2, 2007


                                      F-29


ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

None

ITEM 9A.    CONTROLS AND PROCEDURES

Controls and Procedures

As of December  31,  2006,  the Company  carried  out an  evaluation,  under the
supervision and with the  participation of our chief executive officer and chief
financial  officer,  of the  effectiveness  of the design and  operations of our
disclosure  controls  and  procedures,  as defined in Rule  13a-15(e)  under the
Securities Exchange Act of 1934.

Our chief executive officer and chief financial officer concluded that as of the
evaluation  date,  such  disclosure  controls and  procedures  were effective to
ensure that information required to be disclosed by us in the reports we file or
submit under the Exchange Act are recorded,  processed,  summarized and reported
within the time periods  specified in the rules and forms of the  Securities and
Exchange  Commission,  and is accumulated  and  communicated  to our management,
including  our  chief  executive  officer  and  chief  financial   officer,   as
appropriate to allow timely decisions regarding required disclosure.

Management's  report on our internal  controls over  financial  reporting can be
found with the attached financial statements.  The Independent Registered Public
Accounting  Firm's  attestation   report  on  management's   assessment  of  the
effectiveness of our internal control over financial reporting can also be found
with the attached financial statements.

Management's Report on Internal Control Over Financial Reporting

Our  management is  responsible  for  establishing  and  maintaining an adequate
system of internal  control  over  financial  reporting.  Our system of internal
control over  financial  reporting is designed to provide  reasonable  assurance
regarding  the  reliability  of  financial  reporting  and  the  preparation  of
financial  statements  for  external  purposes  in  accordance  with  accounting
principles generally accepted in the United States of America.

Our internal  control  over  financial  reporting  includes  those  policies and
procedures that:

      o     pertain to the  maintenance  of records that, in reasonable  detail,
            accurately and fairly reflect our  transactions  and dispositions of
            our assets;

      o     provide  reasonable  assurance that our transactions are recorded as
            necessary  to permit  preparation  of our  financial  statements  in
            accordance  with  accounting  principles  generally  accepted in the
            United States of America, and that our receipts and expenditures are
            being made only in accordance with  authorizations of our management
            and our directors; and

      o     provide  reasonable   assurance   regarding   prevention  or  timely
            detection of  unauthorized  acquisition,  use, or disposition of our
            assets  that  could  have  a  material   effect  on  the   financial
            statements.

Because of its inherent limitations, a system of internal control over financial
reporting  can provide only  reasonable  assurance and may not prevent or detect
misstatements.  Further,  because  of changes in  conditions,  effectiveness  of
internal  controls  over  financial  reporting  may vary over  time.  Our system
contains   self-monitoring   mechanisms,   and  actions  are  taken  to  correct
deficiencies as they are identified.

Our  management  conducted an evaluation of the  effectiveness  of the system of
internal  control over  financial  reporting  based on the framework in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission.  Based on this evaluation,  our management concluded
that our system of internal control over financial reporting was effective as of
December 31, 2006.  Our  management's  assessment  of the  effectiveness  of our
internal control over financial reporting has been audited by Amper,  Politziner
& Mattia,  P.C., an independent  registered public accounting firm, as stated in
their report which is included herein.


                                      -37-


ITEM 9B.    OTHER INFORMATION

None

                                    PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The  information  required under this item is  incorporated  by reference to the
Company's Proxy Statement for the 2007 Annual Meeting of Stockholders.

ITEM 11.    EXECUTIVE COMPENSATION

The  information  required under this item is  incorporated  by reference to the
Company's Proxy Statement for the 2007 Annual Meeting of Stockholders.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND
            RELATED STOCKHOLDER MATTERS

The  information  required under this item is  incorporated  by reference to the
Company's Proxy Statement for the 2007 Annual Meeting of Stockholders.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
            INDEPENDENCE

The  information  required under this item is  incorporated  by reference to the
Company's Proxy Statement for the 2007 Annual Meeting of Stockholders.

ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES

The  information  required under this item is  incorporated  by reference to the
Company's Proxy Statement for the 2007 Annual Meeting of Stockholders.


                                      -38-


                                     PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   Exhibits:

      3.1         Articles  of  Incorporation   of  the  Company,   as  amended,
                  (incorporated  by  reference  to Exhibit 3.1 of Form  10-KSB/A
                  filed on April 4, 1997).

      3.2         By-laws of the Company as currently in effect (incorporated by
                  reference  to Exhibit 3.2 of Form  10-KSB/A  filed on April 4,
                  1997 and Exhibit 99.3 of the Company's  Current Report on Form
                  8-K filed on September 21, 1998).

      4.1         Specimen Common Stock  Certificate  (incorporated by reference
                  to Exhibit 4.1 of Form 10-KSB/A filed on April 4, 1997).

      10.1*       1997 Stock Option Plan  (incorporated  by reference to Exhibit
                  10.1 of the Company's Registration Statement on Form S-8 (File
                  No. 333-61313) filed on August 13, 1998).

      10.2        Exclusive  Representation and Distribution Agreement dated May
                  4, 1992  between the  Company and Godfrey  Science and Design,
                  Inc. et al  (incorporated by reference to Exhibit 10.2 of Form
                  10-KSB/A filed on April 4, 1997).

      10.3*       Employment  Agreement  dated June 1, 1995  between the Company
                  and Guy J. Quigley  (incorporated by reference to Exhibit 10.3
                  of Form 10-KSB/A filed on April 4, 1997).

      10.4*       Employment  Agreement  dated June 1, 1995  between the Company
                  and Charles A. Phillips  (incorporated by reference to Exhibit
                  10.4 of Form 10-KSB/A filed on April 4, 1997).

      10.5        United States  Exclusive Supply Agreement dated March 17, 1997
                  (Portions   of  this   exhibit  are  omitted  and  were  filed
                  separately with the Securities Exchange Commission pursuant to
                  the Company's application requesting confidential treatment in
                  accordance with Rule 406 of Regulation C as promulgated  under
                  the  Securities  Act of 1933,  incorporated  by  reference  to
                  Exhibit  10.5 of Form SB-2  dated  September  29,  1997).  See
                  exhibit 10.14.

      10.6        Consulting Agreement dated May 4, 1992 between the Company and
                  Godfrey  Science and  Design,  Inc.  et al.  (incorporated  by
                  reference to Exhibit 10.5 of Form  10-KSB/A  filed on April 4,
                  1997).

      10.7*       Employment  Agreement  dated  November  5, 1996,  as  amended,
                  between  the  Company  and  George J. Longo  (incorporated  by
                  reference  to Exhibit  10.10 of Form 10-KSB filed on March 30,
                  1998.

      10.8        Rights  Agreement dated September 15, 1998 between the Company
                  and American Stock Transfer and Trust Company (incorporated by
                  reference to Exhibit 1 to the Company's Registration Statement
                  on Form 8-A filed on September 18, 1998).

      10.9        Consulting  agreement  dated March 7, 2002 between the Company
                  and  Forrester  Financial  LLC  (incorporated  by reference to
                  Exhibit 99.1 of Form 8-K filed on April 11, 2002).

      10.10       Warrant  agreement dated March 7, 2002 between the Company and
                  Forrester  Financial LLC (incorporated by reference to Exhibit
                  99.2 of Form 8-K filed on April 11, 2002).

      10.11       Agreement  dated  February  2, 2003  between  the  Company and
                  Forrester  Financial LLC (incorporated by reference to Exhibit
                  99.3 of Form 8-K filed on February 18, 2003).

      10.12       Amended and Restated Warrant  Agreement dated February 2, 2003
                  between the Company and Forrester  Financial LLC (incorporated
                  by reference to Exhibit 99.4 of Form 8-K filed on February 18,
                  2003).


                                      -39-


      10.13       Share agreement  effective as of December 31, 2002 between the
                  Company and Suncoast Naturals, Inc. (incorporated by reference
                  to Exhibit 2.1 of Form 8-K filed on February 6, 2003).

      10.14       Third Amendment to United States  Exclusive  Supply  Agreement
                  (incorporated by reference to Exhibit 10.18 of Form 10-K filed
                  on April 1, 2004).

      10.15       Asset Purchase and Sale Agreement dated August 18, 2004 by and
                  between JoEl, Inc. and the Company  (incorporated by reference
                  to Exhibit 10.1 of Form 8-K filed on August 20, 2004).

      10.16       Addendum  dated October 1, 2004 by and between the Company and
                  JoEl,  Inc. to the asset  purchase  and sale  agreement  dated
                  August 18, 2004  (incorporated by reference to Exhibit 10.1 of
                  Form 8-K filed on October 7, 2004).

      10.17       Term Note dated  October 1, 2004 in the amount of $3.0 million
                  executed  by  the  Company  in  favor  of PNC  Bank,  National
                  Association (incorporated by reference to Exhibit 10.2 of Form
                  8-K filed on October 7, 2004).

      10.18       Open-End Mortgage and Security Agreement dated October 1, 2004
                  on real property located in Lebanon,  Pennsylvania executed by
                  Quigley  Manufacturing  Inc.  in favor of PNC  Bank,  National
                  Association (incorporated by reference to Exhibit 10.3 of Form
                  8-K filed on October 7, 2004).

      10.19       Open-End Mortgage and Security Agreement dated October 1, 2004
                  on  real  property  located  in  Elizabethtown,   Pennsylvania
                  executed by Quigley  Manufacturing  Inc. in favor of PNC Bank,
                  National  Association  (incorporated  by  reference to Exhibit
                  10.4 of Form 8-K filed on October 7, 2004).

      10.20       Registration  Rights  Agreement  dated  October 1, 2004 by and
                  among  the  Company  and the  shareholders  signatory  thereto
                  (incorporated  by  reference to Exhibit 10.5 of Form 8-K filed
                  on October 7, 2004).

      10.21*      Employment  Agreement  dated  October 1, 2004 between  Quigley
                  Manufacturing   Inc.  and  David  B.  Deck   (incorporated  by
                  reference  to  Exhibit  10.6 of Form 8-K filed on  October  7,
                  2004).

      10.22*      Employment  Agreement  dated  October 1, 2004 between  Quigley
                  Manufacturing  Inc. and David Hess  (incorporated by reference
                  to Exhibit 10.7 of Form 8-K filed on October 7, 2004).

      14.1        Code of Ethics (incorporated by reference to Exhibit II of the
                  Proxy Statement on Schedule 14A filed on March 31, 2003).

      16.1*       PricewaterhouseCoopers   LLP  letter   dated  March  30,  2005
                  (incorporated  by reference to Exhibit 16.1 of Form 10-K filed
                  on March 31, 2005).

      21.1**      Subsidiaries of The Quigley Corporation.

      23.2**      Consent of Amper, Politziner & Mattia,  Independent Registered
                  Public Accounting Firm, dated March 12, 2007.

      31.1**      Certification  of Chief Executive  Officer pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

      31.2**      Certification  of Chief Financial  Officer pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

      32.1**      Certification  of the Chief Executive  Officer  pursuant to 18
                  U.S.C.  1350,  as  adopted  pursuant  to  Section  906  of the
                  Sarbanes-Oxley Act of 2002.

      32.2**      Certification  of the Chief Financial  Officer  pursuant to 18
                  U.S.C.  1350,  as  adopted  pursuant  to  Section  906  of the
                  Sarbanes-Oxley Act of 2002.

                  *     Indicates a management  contract or compensatory plan or
                        arrangement
                  **    Filed herewith


                                      -40-


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                             THE QUIGLEY CORPORATION


/s/  Guy J. Quigley                                               March 12, 2007
-------------------------------------------------                 --------------
Guy J. Quigley, Chairman of the Board, President,                       Date
Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons on behalf of the registrant and in the
capacities and on the dates indicated:

SIGNATURE                                           TITLE                                    DATE
---------                                           -----                                    -----


/s/ Guy J. Quigley                 Chairman of the Board, President,                    March 12, 2007
-----------------------------      Chief Executive Officer and Director
Guy J. Quigley


/s/ Charles A. Phillips            Executive Vice President, Chief Operating            March 12, 2007
-----------------------------      Officer and Director
Charles A. Phillips


/s/ George J. Longo                Vice President, Chief Financial                      March 12, 2007
-----------------------------      Officer and Director (Principal
George J. Longo                    Financial and Accounting Officer)


/s/ Jacqueline F. Lewis            Director                                             March 12, 2007
-----------------------------
Jacqueline F. Lewis


/s/ Rounsevelle W. Schaum          Director                                             March 12, 2007
-----------------------------
Rounsevelle W. Schaum


/s/ Stephen W. Wouch               Director                                             March 12, 2007
-----------------------------
Stephen W. Wouch


/s/ Terrence O. Tormey             Director                                             March 12, 2007
-----------------------------
Terrence O. Tormey


                                      -41-`